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Aussie, kiwi rally stalls as RBA steadies bond market

SINGAPORE, Oct 22 (Reuters) - The Australian and New Zealand dollars paused a sparkling rally on Friday as commodity prices cooled and as a sharp selloff in Antipodean bond markets eased with the Reserve Bank of Australia stepping in to defend its yield target.

The Aussie was last 0.1% higher at $0.7472, supported by news that embattled developer China Evergrande would avoid default by finding funds for an overdue payment and by the end of a long COVID-19 lockdown in Melbourne.

The kiwi ticked up 0.1% to $0.7166, though it was smarting after suffering its sharpest drop in a fortnight on Thursday.

Both currencies had withdrawn sharply overnight from multi-year peaks made against the yen. The pullbacks halted a weeks long rally that has squeezed out short sellers and carried the Antipodeans more than 3% higher on the greenback.

“At this stage it looks more like a rebalancing rather than the start of a fresh downtrend,” said analysts at ANZ Bank in a note, adding that the kiwi could remain supported.

However, in Australia the RBA fired a warning shot to markets that had begun to challenge the bank’s insistence it would keep rates steady until 2024.

The RBA stepped in with an offer to buy A$1 billion of its targeted April 2024 government bond, pulling the yield back down to 0.14%, after it had strayed as high as 0.21% - against a target of 0.1%.

“It’s a reminder that the RBA is still around,” said Sean Callow, currency analyst at Westpac.

“I think if they’d just continued to stand by and let markets drift away from it that would have inspired people to become aggressive about the RBA changing policy in November.”

Prices of coal, iron ore and most metals also fell sharply amid China’s rapidly shifting supply-demand outlook.

New Zealand government bonds steadied on Friday, with the 10-year yield at 2.448% after briefly touching an almost three-year high of 2.463%.

Australian government bond futures eased slightly with the three-year bond contract down 2 ticks at 99.050 and the 10-year contract 3 ticks at 98.155. (Reporting by Tom Westbrook; Editing by Kim Coghill)

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