By Swati Pandey
SYDNEY, Aug 12 (Reuters) – The Australian and New Zealand dollars bounced on Monday as risk sentiment was whetted by a firmer-than-expected fixing of the Chinese yuan and stronger equities, though analysts expect the antipodean currencies to remain under pressure for now.
The two currencies are often played as a liquid proxy to hedge against risks in Chinese and emerging market assets as their small, open economies are heavily reliant on world trade. China is also the top trading partner for both Australia and New Zealand.
Liquidity was light across markets on Monday with Asian markets including Japan, India Singapore shut for a holiday.
The Australian dollar advanced slightly to $0.67955 after the People’s Bank of China (PBOC) set the daily midpoint for yuan trading – which determines the limits for its onshore movement – at 7.0211 per dollar.
That was stronger than market expectations and helped allay some market fears China would use its currency as bargaining tool in its trade war with the United States. The standoff between the two economic powers has already spread beyond trade to include intellectual property rights and technology know-how.
Sentiment on Monday was also helped by an uptick in Chinese equities markets with the blue-chip index up nearly 1%.
However, analysts expect the Aussie and the kiwi dollar to stay under pressure, at least in the near term, on expectations of further interest rate cuts in both countries and uncertainties driven by the Sino-U.S. trade war.
The National Australia Bank on Friday downgraded forecasts for the two, reflecting their new assumption that “nothing materially positive in terms of U.S.-China trade negotiations will happen” at least through early 2020.
Last week, the Aussie hit a decade low of $0.6677 as markets started pricing in aggressive policy easing by the Reserve Bank of Australia (RBA) after its New Zealand counterpart stunned traders with a larger-than-expected 50 basis-point cut.
The New Zealand dollar, which tumbled to a 3-1/2 year trough of $0.6378 following the steep rate cut, has since recovered somewhat and was last fetching $0.6472.
“The latest trade developments are a game changer for our AUD and NZD views,” NAB forex strategy team wrote to clients in a note, predicting the Aussie at $0.65 by the end of the year and the kiwi at $0.62.
NAB also expects further, albeit controlled, depreciation of the yuan.
Market attention will next be on Chinese figures on retail sales and industrial output due Wednesday as well as Australian quarterly wage price index data.
The all-important jobs data is due Thursday where analysts expect the unemployment rate to stay stuck at 5.2%, stubbornly higher than the RBA’s goal of 4.5%.
New Zealand government bonds were barely moved.
Australian government bond futures were slightly weaker, with the three-year bond contract down half a tick at 99.345. The 10-year contract slipped 1.5 ticks to 99.025. (Editing by Richard Borsuk & Shri Navaratnam)