Australia, NZ dollars weighed by weak commodities, yen shines

The Australian and New Zealand dollars were nursing losses on Wednesday after renewed weakness in iron ore and dairy prices weighed on risk appetite, sending investors to the safety of the yen.

The New Zealand dollar was the hardest hit after international dairy prices fell 2.9 per cent at a fortnightly auction, confounding expectations for a rise and disappointing kiwi bulls.

It slipped to a two-week trough of US$0.6577 (S$0.90), having dropped 1.1 per cent on Tuesday. Support was found at US$0.6572.

The Reserve Bank of New Zealand (RBNZ) said that low global milk prices were putting significant financial pressure on the nation's dairy farms, but felt confident the banking system was robust enough to withstand a severe downturn.

Dairy represents more than 7 per cent of the country's GDP and is the largest export earner.

Risk appetite had already been waning as markets waited for fresh guidance from the US Federal Reserve. Even an improvement in the nation's current account deficit to NZ$2.6 billion (S$2.3 billion) did little to revive sentiment.

The safe-haven yen was the major beneficiary with the kiwi skidding more than one yen to 74.81 since Tuesday's peak. It has shed 2.4 per cent so far this week, pulling closer to the 2016 low of 73.19.

The Aussie also lost ground to the yen at 84.51, from a two-month peak of 86.40 set on Monday. Undermining the Aussie was a 6.8 per cent drop in the, ever volatile, price of iron ore, Australia's top export earner.

The Aussie slipped to US$0.7455, edging away from an eight-month summit just below 76 cents touched on Monday. "The fall in the spot iron ore price is the sixth straight day of decline, more than fully unwinding the record 18.6 per cent surge on 7 March," said Sean Callow, a senior strategist at Westpac. "It is looking increasingly like AUD/USD US$0.76 was too tough a nut to crack." Support was found around US$0.7440, with resistance at US$0.7484.

Markets now await Fed guidance on the outlook for rate hikes and especially on the tone of Chair Janet Yellen's news conference.

Australian government bond futures edged up from multi-week lows, with the three-year bond contract 5 ticks firmer at 97.980. The 10-year contract rose 2 ticks to 97.3500, while the 20-year contract added 2.25 ticks to 96.7950.

New Zealand government bonds eased, sending yields 2 basis points higher at the long end of the curve.