WSJ:Australian Dollar Down Late, Still Has Good Support
SYDNEY--The Australian dollar drifted lower during the trading week's opening session but remains well buoyed by the U.S. Federal Reserve's new stimulus plans and is also gaining support from stabilizing iron ore prices.
"It's a new week and markets remain firmly gripped by post [Federal Open Market Committee] fever. Risk assets are performing well again and safer bonds are under heavy selling pressure," said Alex Stanley, strategist at Commonwealth Bank CBA.AU +0.02% .
At 0611 GMT, the Australian dollar bought US$1.0533, down from US$1.0583 late Friday in local trade after it touched a six-month high of US$1.0615 in New York. It was also at Y82.5145, up from Y82.08.
The better tone in markets meant bond futures sold off sharply across the curve.
"Aussie bond yields are breaking higher, following the U.S. and German bund selloff on Friday," Mr. Stanley said.
There was little major news flow in local trade Monday; dealers are instead waiting on a flurry of central-bank commentary due this week.
On Tuesday, the minutes from the Reserve Bank of Australia's September board meeting will be released, followed by a speech from RBA Assistant Governor Guy Debelle. His comments on bank funding will be watched closely for a read on whether policy makers feel that lenders are still facing rising borrowing costs.
On Wednesday, a number of Treasury and RBA officials will speak at a conference entitled "Structural Change and the Rise of Asia."
"The big-picture nature of this forum should provide ample scope to look through near-term cyclical uncertainties and profitability concerns of miners, to accentuate the positive structural boost to the Australian economy from its ties to Asia," said Stephen Walters, chief economist at JP Morgan JPM +0.41% .
Strategists at UBS UBS +3.53% said the bank went short on the Australian dollar on Friday, through a six-month option structure.
"With iron ore prices having slumped and some key mining projects in Australia having been delayed, the currency is at risk if the mining companies' large capital expenditures peak earlier than the next one to two years that is the RBA's current base case," said strategist Gareth Berry.
"Investors should consider buying long-dated, out-of-the-money downside options to capture a decisive turn in sentiment in the future against the Australian dollar," he said.
