Dollar holds above US77c

The search for yield is continuing to support the Aussie, despite the block of China’s Ausgrid bid.

The main catalysts for the current strength in the Aussie is weakness in the US dollar and falling global bond yields, said CBA’s Richard Grace.

The Australian dollar continued to trade around its highest levels in four months during late trade on Thursday, with investors still drawn to the attraction of relatively high Commonwealth bond yields.

At 5.45pm (AEST), the Australian dollar was trading at US77.08 cents, up slightly from US77.05c at the same time yesterday.

The main catalysts for the current strength in the Aussie is weakness in the US dollar and falling global bond yields, said Richard Grace, chief currency strategist at the Commonwealth Bank of Australia.

“With a majority of developed market bond yields negative, Australia’s higher yielding bonds are a magnet for foreign capital,” he said. “This will continue to support the Aussie,” he added.

The Australian dollar fell sharply against the New Zealand dollar after the Reserve Bank of New Zealand cut interest rates and signalled at least one more cut is likely.

That outlook compares with the Reserve Bank of Australia’s more cautious outlook having cut interest rates last week.

The RBNZ cut its official cash rate by a quarter of a percentage point, as widely expected, and said “further policy easing will be required.” It also lowered its outlook for 90-day bank bills — widely considered a proxy for interest rates — showing it plans to cut interest rates by at least another quarter-point by the middle of next year.

Traders had been expecting a more definitive statement about further easing from the RBNZ.

But the Aussie then came down a little after federal Treasurer Scott Morrison blocked the sale of the NSW electricity provider Ausgrid to Chinese bidders, citing national security concerns.

“That saw a little bit of downside on the currency but not much,” Mr Catril said.

“But it (the Australian dollar) is still pretty solid. It’s kind of under the broad theme of US dollar weakness rather than an Aussie story as such.” Mr Catril said the US dollar had been weaker as markets focused on the US Federal Reserve, which has been considering lifting interest rates, relative to other central banks which are cutting interest rates.

“It’s hard to see the Fed moving while everybody else is easing,” Mr Catril said.

— Dow Jones newswires, AAP