Economic news

Australia, NZ dlrs hold Gains, Bond Market Mourns RBA Buying

SYDNEY, Feb 10 (Reuters) - The Australian and New Zealand dollars were trying for a fourth session of gains on Thursday as global equity markets rallied and commodities kept climbing, while Australian bonds formally waved goodbye to buying by the central bank.

The Reserve Bank of Australia (RBA) ceased its quantitative easing campaign on Thursday having hoovered up more than A$350 billion ($251.23 billion) in bonds as part of a massive pandemic stimulus package.

The central bank estimates the buying binge kept bond yields around 30 basis points lower than they otherwise would be, so its demise could be one reason yields have been surging.

In just the past four sessions, yields on 10-year paper have climbed 27 basis points to 2.13% and heights last visited in early 2019.

Three-year futures also dived as much as 27 ticks before steadying at 98.420, maintaining a bearish flattening across the curve.

"Over coming weeks we will get a better sense of the true demand in the bond market. However, we think there will be minimal disruption," said Damien McColough, head of rates strategy at Westpac.

"Domestic market sentiment and momentum are being dominated by the broader global bond direction, so yields are likely to keep pushing higher over coming weeks."

The jump in local yields has more than kept pace with rising U.S. yields and helped the Aussie firm to $0.7172, and away from last month's trough of $0.6967.

The break of resistance at $0.7168 also brightened the technical outlook and could see the rally extend to $0.7275.

The kiwi dollar followed to reach $0.6680 , having added 0.5% overnight to as high as $0.6697. Again, the break of resistance at $0.6683 improved the technical background and opened the way to retracement targets at $0.6710 and $0.6753.

Strong commodity prices should be supporting the Aussie, with major Australian exports of coal, base metals and liquefied natural gas all climbing.

Iron ore took a hit on Wednesday as Beijing protested its sharp recent gains, but was still near five-month peaks.

The RBA's commodity price index has climbed 31% in the past year, a trend that would historically be associated with a higher Aussie. Instead, the correlation to commodities has been lost along the way so that the Aussie is down around five U.S. cents on a year ago and undervalued by normal measures.

($1 = 1.3931 Australian dollars)

Editing by Simon Cameron-Moore

Source: Reuters

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