SYDNEY (Reuters) – The Australian dollar strengthened to a seven-week high on Monday as investors bought trade-exposed currencies on expectations that a less volatile Biden administration could boost world commerce.
The Aussie, a liquid proxy for risk, climbed to $0.7297 AUD=D3, its highest level since Sept. 21. The unit had hit a 15-week low of $0.6990 just last Monday.
The New Zealand dollar too started the week on a firmer note, gaining 0.59% to $0.6811 NZD=D3, its highest level in 19 months.
The antipodean currencies had weakened in recent weeks as their central banks signalled further monetary policy easing to rescue their economies from the coronavirus pandemic.
However, they received a fillip last week as markets begun pricing in a Biden presidency and Republican Senate – a combination that is expected to spur further monetary easing by the U.S. Federal Reserve. [GLOB/MKTS]
“A Democratic victory without Senate control would reinforce market trends such as the hunt for yield and growth stocks,” Blackrock Investment Institute wrote in a note.
“A Biden divided government could crimp fiscal stimulus, and cap rises in bond yields and inflation expectations.”
Domestically, investors are focussed on the Reserve Bank of New Zealand, which is expected to leave policy rates unchanged on Wednesday.
“We expect the RBNZ to announce the introduction of a Funding for Lending Programme (FLP) next week – cheap loans for New Zealand’s banks,” Westpac analysts said.
“We expect clear incentives to be included for banks to on–lend these loans to businesses.”
Further, economists polled by Reuters predict the RBNZ would start cutting rates into negative territory by early next year. [NZ/INT]
Australian bond yields were little changed, with the tree-year bond futures YTTc1 flat at 99.845 and futures for 10-year bonds YTCc1 were 3 ticks lower at 99.2200.
($1 = 1.3716 Australian dollars)
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