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Reuters Australia
Aussie at 1-wk high on Russia report, weak NZ GDP
Friday June 26, 07:19 PM
* Aussie firmer on stocks, report of Russia bank plan
* Gains vs NZ$ after NZ GDP weaker than expected
SYDNEY, June 26 (Reuters) - The Australian dollar bounced to a one-week high on Friday as firmer equity markets and a media report that Russia was lining up a major bank bailout plan saw investors return to riskier currencies.
The Aussie also gained ground against its New Zealand counterpart after growth data there confirmed the economy had entered its longest-ever recession in the first quarter.
The Aussie AUD=D4 edged up to $0.8043, from $0.7989 seen here late Thursday. It jumped against the New Zealand dollar NZD= to NZ$1.2507 AUDNZD=R, from Thursday's NZ$1.2459.
Traders said the euro EUR= got a boost on Friday after the Financial Times reported Russia may bail out some of its banks on a more far-reaching scale than the United States. [ID:nLP536013]
Many European banks have businesses in Russia so a more stable Russian banking system is seen as a boon for the euro. The Aussie tends to move in tandem with the euro as they offer higher yields than the U.S. and Japan.
"Reports that Russia is doing a buyout package for its banks has helped the Aussie get better bids," said Matthew Brady, a currency trader at JPMorgan.
But Brady said he was shorting the Aussie at current levels, with stop-losses at $0.8250, because it was trading near the top of its recent range.
The Aussie also cashed in on data showing New Zealand's economy shrank 1 percent in the first quarter, slightly worse than expected, underlining the relative strength of the Australian economy which has so far skirted a recession.
The weak growth report also stirred speculation that kiwi rates may have to stay low for a longer period of time.
Still, some analysts cautioned the Reserve Bank of New Zealand would be reluctant to cut rates much further from a record low 2.5 percent because it needs to keep yields high enough to attract foreign investors to fund the country's current account deficit.
"We remain of the view that the RBNZ is reluctant to take the overnight cash rate much further through Australia's 3 percent cash rate given its dependence upon offshore financing," said Su-Lin Ong, an analyst at RBC Capital Markets.
Aussie bond futures pared gains, following U.S. Treasuries lower in Asian trade.
Three-year bond futures YTTc1 rose 0.06 points at 95.15, while ten-year bond futures YTCc1 gained 0.08 points to 94.405.
The local yield curve flattened again, with the spread of 10-year cash yields over three-year yields at 106.5 basis points, the narrowest since January.
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