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Australia, NZ dollars set for solid weekly gains as greenback softens

SYDNEY, Nov 6 (Reuters) - The Australian and New Zealand dollars were poised for strong weekly gains on Friday against their U.S. counterpart, which struggled as a contentious presidential election diminished hopes of a fiscal stimulus to support the economy.

The Australian dollar was last down 0.3% at $0.7265 as local investors fretted over the country’s relationship with China, its largest trading partner. Currency traders, however, said souring trade relations are yet to hit overall exports.

Diplomatic relations between both economies have become strained after Beijing was angered by Australia’s call for an international inquiry into the source of the coronavirus, and Australian police raids connected to foreign interference investigations.

Despite Friday’s losses, the currency is on track to end the week more than 3% higher.

The New Zealand dollar climbed 0.1% to $0.6781 and was so far up 2.5% for the week.

Investors are also closely watching the results of the U.S. presidential election and leapt on the prospect of gridlock in Congress and the notion Silicon Valley will be spared greater oversight if the Democrats in fact are unable to control the Senate, analysts said.

Democrat challenger Joe Biden maintains an edge over President Donald Trump, who is falsely claiming the election is rigged while calling for vote counting to stop.

Such an outcome would demand greater action from the U.S. Federal Reserve, they added.

“Risk is again firmly on the front foot,” said Chris Weston, Melbourne-based strategist for Pepperstone.

“The rally in U.S. equities has hit the USD, so our job is simply to find the best currency to trade that and it could be the NOK, NZD or AUD.”

Some analysts said the antipodean currencies would also benefit from an expected improvement in Sino-U.S. relationship under a Biden presidency.

Closer home, the Reserve Bank of Australia (RBA) released its quarterly economic forecasts predicting faster growth for the A$2 trillion economy while signalling further cuts to interest rates, already at record lows, were highly unlikely.

However, “the forecasts still don’t have the RBA achieving its objectives over the coming two years, which means we have to be alert to the prospect of yet more stimulus from the RBA”, ANZ economists wrote in a note.

Earlier this week, the RBA trimmed its cash rate by 15 basis points to 0.1% and expanded its government bond-buying programme by A$100 billion to include long-dated securities.

“It’s inevitable that the bond purchase program will be extended beyond its original six-month term,” ANZ added. (Editing by Sherry Jacob-Phillips)

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