Australian dollar gets a welcome burst of energy from LNG surge

SYDNEY, Oct 7 (Reuters) - The Australian dollar was holding its own on Thursday as surging energy prices gave it a lift on the euro and yen, while its New Zealand neighbour lagged as the market pondered the likely pace of rate increases there.

The Aussie firmed up to $0.7288, and away from Wednesday’s trough of $0.7226, but still faces stiff resistance in the $0.7305/16 area.

The kiwi dollar was flat at $0.6920, having backtracked from a $0.6980 top on Wednesday when the country’s central bank hiked rates, as expected.

The Aussie was finding an upside in the global explosion of energy prices given Australia is a net exporter of energy and the world’s leading exporter of liquefied natural gas (LNG).

That was a major reason Australia surprised with a record trade surplus in August when analysts had thought a fall in iron ore prices would hit export receipts.

George Saravelos, an analyst at Deutsche Bank Research, noted natural gas prices in Europe have climbed 500% this year and, if sustained, could wipe out the EU’s trade surplus. Japan was also set to suffer as a major energy importer.

“Accounting for relative energy usage in Europe for example, the natural gas price rise seen this year is equivalent to oil trading around $200 per barrel now,” he said in a note.

“These price moves are a big deal. It adds to our FX caution on EUR/USD into year-end and support our bullish NOK, CAD and AUD versus bearish GBP, CHF and NZD views.”

Thus while the Aussie has been steady on the U.S. dollar it has recently swung higher on the euro and yen, reaching a three-month top on the single currency on Thursday.

Also underpinning the Aussie has been a shift higher in local bond yields, with the 10-year yield up 36 basis points in the last 10 sessions to a four-month peak of 1.599%.

That has taken yields 6 basis points over Treasuries, having traded around 10 basis points under for much of September.

New Zealand yields have risen only 17 basis points in the same period, though they were already much higher than both at 2.02% as the market had long priced in rate rises from the Reserve Bank of New Zealand.

While the bank hiked as expected on Wednesday, it sounded enough caution about coronavirus uncertainties to trim wagers about another move in November. Swaps now imply a 79% chance of a rise to 0.75% at next month’s meeting. (Editing by Ana Nicolaci da Costa)