Reuters Australia
Aussie dollar off highs, US$ bounces on GSE news
Monday July 14, 11:13 AM
SYDNEY, July 14 (Reuters) - The Australian dollar eased off 25-year highs against the U.S. dollar on Monday after the U.S. Treasury and the Federal Reserve announced plans to support the two top U.S. mortgage lenders.
* The U.S. Treasury Department and Federal Reserve on Sunday announced sweeping measures to help out embattled mortgage lenders Fannie Mae FNM.N and Freddie Mac FRE.N, by lending money and buying equity if necessary [ID:nWBT009391].
* The news helped the U.S. dollar regain a little of Friday's hefty losses. The Aussie AUD= backed off to $0.9670, having struck a 25-year high of $0.9718 in offshore trade.
* Still, the troubles of the mortgage giants augured ill for the already slumping U.S. housing market and led investors to price out any chance of rate hikes by the Federal Reserve.
* Hefty interest rate differentials between U.S. and Australian assets and high commodity prices are likely to support the Aussie dollar near recent highs. Investors are still pricing in a 32 percent risk of a rate hike by the Australian central bank in the next 12 months.
* Despite the credit and stock market jitters, the Aussie managed to hold its ground against the low-yielding currencies like the yen and Swiss franc, suggesting investors were growing more confident in the carry trade. The Aussie traded steady around 103.00 yen AUDJPY=R.
* Commodities also provided support to the Aussie. Gold XAU= traded near a four-month high of $964.00/966.00 an ounce in early Asian trade, although oil eased after the U.S. dollar recovered ground. Crude futures CLc1 hit a record over $147 a barrel on Friday before dipping to $143.00 on Monday.
* Australian bond futures extended losses, taking cues from U.S. Treasuries. Treasures continued to fall on worries about more U.S. government debt supply to help the mortgage finance companies, as well as investors switching to agency bonds.
* Three-year Australian bond futures YTTc1 eased by 0.035 points to 93.41, while the 10-year bond contract YTCc1 lost 0.05 points to 93.60. (Reporting by Anirban Nag; Editing by Wayne Cole)
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