Australia, New Zealand dollars at multi-month lows as yields buffers shrink

Business Recorder reported that the Australian and New Zealand dollars stayed near multi-month lows on Friday as the US dollar strengthened further. The Aussie was on course for a fourth consecutive weekly loss, last quoted at $0.6920 after dipping to a three-month low of $0.6904. The kiwi hovered at an 11-month low of $0.5592, and the euro fell 0.6 per cent to A$1.1624 amid concerns over French debt.

The currency weakness came after a jump in US yields that pushed the extra return on Australian debt to its smallest level in a year. Three-year Australian yields fell 11 basis points over the week to 4.898 per cent, as traders pared their bets on an October rate increase, now put at 22 per cent. The Reserve Bank of Australia had lifted rates to 4.6 per cent on Tuesday, a 15-year high, and investors read the move as a signal that policymakers want to see the effect of tightening before acting again.

A sharp housing slowdown and rising unemployment have also reduced the chance of a December move, now put at 38 per cent. Strong demand for Australian government bonds has shielded them from the Treasury sell-off, narrowing their yield premium to just 11 basis points, the lowest in a year. That outperformance has weakened the Aussie's interest rate buffer against the greenback.