BLBG: Australia, New Zealand Dollars Rise in Week on Risk Appetite
The Australian and New Zealand dollars rose this week, headed for their longest winning streaks in more than five months, on speculation global interest-rate cuts will revive investors’ risk appetite.
Australia’s currency strengthened for a fourth week versus both the yen and the U.S. dollar, its best performance in more than five months, as prices increased for commodities that the nation exports. Gold, the country’s third-most valuable export, climbed in 2008 for an eighth straight year. The Australian and New Zealand dollars retreated today after reports showed manufacturing contracted last month in China and Australia.
“The market might have got a bit ahead of itself with gains that came in around Dec. 31,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. “The Asian economy all but switched off in the fourth quarter, though there is some improvement in the prospects for the global economy.”
Australia’s currency rose 0.2 percent to 63.41 yen as of 4:57 p.m. in Sydney, from 63.31 in late Asia trading yesterday, when it touched 64.62, the highest since Nov. 14. It advanced 2.1 percent from 62.10 in New York late on Dec. 26. Australia’s dollar rose 1.7 percent from last week to 69.55 U.S. cents.
New Zealand’s dollar jumped 3 percent to 52.66 yen, from 51.11 yen in Asia late yesterday. The currency advanced 0.7 percent this week against Japan’s currency. New Zealand’s dollar bought 57.75 U.S. cents, from 57.55 cents last week. Currency moves may be volatile due to thin liquidity over the New Year holidays, Rennie said.
Pessimism Easing
“There has been some strength and stability in commodities, so the tremendous pessimism that reverberated around the globe in the last quarter may be behind us,” Rennie said. “The Fed is effectively printing money through quantitative easing so there’s an excess of dollars. The Aussie is well placed to benefit as the risk environment improves.”
The Australian dollar, often referred to as the Aussie, is likely to trade between 69.5 and 72.5 U.S. cents in the coming week, Rennie said.
Futures traders last week decreased bets the Australian dollar will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar compared with those on a gain -- so-called net shorts -- was 1,436 on Dec. 23, compared with net shorts of 4,199 a week earlier.
Commodities Exports
The Reuters/Jefferies CRB Index of 19 raw materials climbed 6.6 percent in the first three days of this week. It dropped 36 percent last year, the biggest annual drop since the measure was introduced in 1957.
Commodities including coal, iron ore, gold and oil account for 60 percent of Australia’s export revenue. New Zealand relies on raw materials including milk and timber for 70 percent of its overseas shipments.
Australia’s currency lost 20 percent of its value against the dollar last year and New Zealand’s slipped 24 percent, as interest rates were slashed and equities tumbled in the two nations. Against the yen, the currencies dropped 35 percent and 39 percent, respectively.
Australian manufacturing contracted for a seventh month in December. The manufacturing index rose one point to 33.7 from November, when it reached the lowest level since the index was started in 1992, the Australian Industry Group and PricewaterhouseCoopers said. A reading below 50 signals manufacturing is shrinking.
Factory output in China, Australia’s No. 1 trading partner, shrank for a fifth month as recessions in the U.S., Europe and Japan sapped demand for the Asian nation’s exports, a survey showed. The CLSA China Purchasing Managers’ Index stood at a seasonally adjusted 41.2, compared with a record low of 40.9 in November, according to figures released today.
More Rate Cuts?
The data may encourage central bank Governor Glenn Stevens to add to the most aggressive round of interest-rate cuts since 1992 when he next reviews policy on Feb. 3.
Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., helping draw funds to the higher- yielding currencies.
Traders were betting on Dec. 26 that the Reserve Bank of Australia would lower borrowing costs an additional 1.2 percentage points over the next 12 months, while New Zealand’s central bank would cut a further 1.14 percentage points from its benchmark, according to separate Credit Suisse indexes based on overnight swaps trading.
Australian government bonds rose. The yield on the 10-year note fell three basis points, or 0.03 percentage point, to 3.96 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.29, or A$2.90 per A$1,000 face amount, to 110.61.
