Australia, NZ dollars give ground, bonds gird for borrowing surge

Credit: REUTERS/DANIEL MUNOZ

By Wayne Cole

SYDNEY, April 3 (Reuters) - The Australian and New Zealand dollars were heading for a weekly loss on Friday as the economic damage wrought globally by the coronavirus kept risk assets under pressure, while bond yields held near record lows despite massive borrowing plans.

The Aussie was stuck at $0.6063 AUD=D3, having lost 1.7% for the week so far. While sizable, the fall followed a jump of 6.2% last week and a slide of 6.1% the week before.

Resistance now lies at the recent top of $0.6215, with support around $0.6000.

The Kiwi dollar stood at $0.5908 NZD=D3, having shed 2.2% for the week. Support lies at $0.5880 and resistance at $0.6067.

Both countries have open economies leveraged to commodities and international trade, leaving them highly vulnerable to the global shutdowns caused by the pandemic.

Data out of Australia on Friday showed retail sales actually rose a solid 0.5% in February, but only because of panic buying of food and healthcare products as the government moved to impose strict social distancing rules.

Since then the government has announced over A$200 billion of fiscal stimulus in a raft of measures, spending which will be paid for by a huge increase in borrowing.

The government debt manager on Friday said it would start selling around A$5 billion of bonds a week along with an unspecified amount of short-term bills to cover the deficits.

That suggests it could issue as much as A$65 billion of bonds by the end of June, when it had previously expected to borrow only A$56 billion for all of 2019-20.

Analysts assume much of the issuance will be for shorter maturities, in part because the Reserve Bank of Australia (RBA) has stepped into the market to buy bonds with the aim of keeping three-year yields around 0.25%.

"We expect the bulk of the issuance to be focussed on sub 10-year maturities, particularly the 3-5 year segment," said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.

"With the front end pinned and the prospect of more issuance at this segment, the yield curve should flatten further with risks for lower 10-year yields."

Yields on three-year paper AU3YT=RR fell to all-time lows around 0.22% this week and were last at 0.248%.

Yields on 10-year debt AU10YT=RR dropped to 0.778%, narrowing the spread to 53 basis points from 63 basis points a week before.

Three-year bond futures YTTc1 edged up 1 tick on Friday to 99.780, implying an yield of 0.22%.

(Reporting by Wayne Cole; Editing by Shounak Dasgupta)

((Wayne.Cole@thomsonreuters.com; 612 9321 8162; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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