BLBG: Australian Dollar Heads for Weekly Gain; N.Z. Dollar Advances
The Australian dollar headed for its first weekly advance in a month on speculation the central will slow the pace of interest-rate cuts, bolstering demand for the nation’s assets. New Zealand’s currency also rose.
Australia’s currency extended gains to a fourth day, the longest in seven weeks, after the Reserve Bank of Australia said in a quarterly monetary policy statement that the “expansionary monetary and fiscal policies now in place will help to cushion” the economy from contractionary forces. The two South Pacific currencies also rose as Asian stocks climbed, signaling greater demand for higher-yielding assets.
“The statement was relatively positive for the Aussie,” said Callum Henderson, head of global currency strategy at Standard Chartered in Singapore. “Core inflation is coming down quite slowly, the RBA still sees positive growth this year and the current monetary-policy setting is providing significant stimulus.”
Australia’s currency gained 2.4 percent this week to 65.29 U.S. cents as of 4:31 p.m. from late in New York last week. It advanced 3.7 percent to 59.43 yen from 57.33. New Zealand’s dollar gained for the first week in four, rising 0.8 percent to 51.33 U.S. cents from Jan. 30. It gained 1.9 percent against Japan’s currency to 46.70 yen.
The Australian dollar may strengthen toward 66.84 cents next week, Henderson said.
Growth Revision
The economy will grow 0.25 percent in the 12 months through June, according to the RBA, which in November predicted an expansion of 1.5 percent for the same period. Gross domestic product will increase 0.5 percent in 2009 and 2.5 percent next year, the bank said in Sydney.
Following the report, traders cut bets to zero that the central bank will lower interest rates by more than 50 basis points, according to a Credit Suisse index based on swaps trading. The odds were 75 percent before the RBA statement. Policy makers have lowered borrowing costs 4 percentage points since September to 3.25 percent, the least since 1964.
Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S. attract investors to the two nations’ assets. New Zealand cut its benchmark 1.5 percentage points to a record 3.5 percent on Jan. 29.
“The RBA revision shouldn’t come as too much of a surprise given what’s happened in the global economy over the past three months,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia.
Stocks Gain
Demand for the Australian and New Zealand dollars also increased as Asian stocks climbed on speculation U.S. Treasury Secretary Timothy Geithner will unveil the nation’s financial- recovery plan Feb. 9.
The U.S. rescue plan will add to packages announced in Australia and Japan this week. Prime Minister Kevin Rudd’s government said Feb. 3 it will spend A$42 billion ($27.4 billion) to prevent the nation entering a recession. The Bank of Japan said it will purchase 1 trillion yen ($11 billion) in shares through April 2010 to shore up capital at financial companies.
“The Australian dollar has benefited from the stabilization in risk appetite,” Michael Hart and New York- based Todd Elmer, London-based analysts at Citigroup Inc., wrote yesterday in a research note. “Since previous weakness ran ahead of the deterioration in underlying fundamentals it remains one of the best-positioned currencies.”
Commodities, Bonds
The UBS Bloomberg Constant Maturity Commodity index of 26 products gained and the Baltic Dry Index advanced for a 13th day. Rising prices for commodities bolster the South Pacific currencies as raw materials account for 60 percent of Australia’s exports and 70 percent of New Zealand’s.
Australian government bonds fell for a fourth day with the yield on the 10-year note rising seven basis points, or 0.07 percentage point, to 4.44 percent, the highest since Dec. 15, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.608, or A$6.08 per A$1,000 face amount, to 106.525.
Investor demand increased as Australia sold A$601 million of bonds today, the first batch of A$24 billion of securities it plans to sell over the next five months.
Buyers bid for 2.6 times the amount of April 2015 securities offered, compared with 1.4 times for the May 2021 bonds sold at the previous auction on Jan. 21. Today’s debt was sold at a weighted average yield of 3.91 percent, the Australian Office of Financial Management said.
