The Australian and New Zealand dollars held firm on Thursday as the risk-leveraged currencies maintained their recent close correlation to U.S. equities, where tech stocks hit record highs overnight.
The Aussie stood at $0.6975 AUD=D3 having got as far as $0.6995 earlier before again failing to clear the $0.7000 chart barrier. Support comes in around $0.6925/30.
The kiwi dollar steadied at $0.6568 NZD=D3 after touching $0.6583, a whisker from the June peak of $0.6585. A break there would take it to ground last trod in late January.
Both have been tracking U.S. stocks as a barometer of global risk appetite, firming even as Australia has suffered a new outbreak of coronavirus that all but shut down its second largest city of Melbourne.
The lockdown is set to temper an expected rebound in economic activity this quarter, after what is likely to be a vicious contraction in the June quarter.
It will also eat into already strained tax revenues and likely prompt further fiscal stimulus, adding to debt. The government is due to release an update on the budget and new policy measures on July 23.
"With a spike of COVID-19 in Victoria seeing new mobility restrictions, there is now clear risk that stimulus is expanded more than we expect," said George Tharenou, an economist at UBS.
He now expects the federal government budget deficit to balloon to A$193 billion ($134.66 billion) in the year to end June 2021, compared to his previous estimate of A$137 billion.
That would be up from an expected A$83 billion in the 2019/20 fiscal year.
Tharenou also forecast government debt would climb to 80% of gross domestic product (GDP) by June 2021, up from 52% in 2018/19. Gross bond issuance would hit a record A$220 billion in 2020/21, with net sales of A$173 billion, he said.
So far, the market has been sanguine about the expansion of government debt with bond tenders drawing strong demand and yields remaining near historic lows.
Yields on 10-year bonds AU10YT=RR are at 0.90%, having spent the past month in a 0.84% to 0.977% range.
Three-year yields AU3YT=RR have been steady around 0.26% for weeks with the Reserve Bank of Australia (RBA) committed to keeping them near 0.25% for some years to come.
($1 = 1.4333 Australian dollars)
