"The resumption of a broad-based US dollar decline last week seems rather bearish for its near term prospects, with an increased focus on the widening US budget deficit," said Westpac forex analyst Sean Callow. The budget deficit is projected to explode to over $1 trillion this year, a lot of which will likely be borrowed from offshore. This week alone, US Treasury is offering a record $258 billion in new debt with maturities from three-months out to seven years.
New Zealand government bonds eased, sending yields 1.5 basis points higher at the short end of the curve. Australian government bond futures edged higher, with the three-year bond contract up 1.5 ticks at 97.850. The 10-year contract gained 3.5 ticks to 97.1150.
The Aussie has been notably weak on the Japanese yen, touching an eight-month trough at 83.28 yen at one point last week. The currency also faces a domestic hurdle in wage data due on Wednesday where a weak result would further widen the odds on a rate hike this year. Median forecasts are that wages rose a modest 0.5 percent in the fourth quarter for a steady annual pace of 2.0 percent, just a tick above record lows. The Reserve Bank of Australia (RBA) last week said it expected wage growth to accelerate only very gradually, suggesting it would take a substantially higher outcome to alter the outlook for steady rates.