SF: Aussie Dollar Climbs to Two-Year High on Widening Yield Spread
Sept. 22 (Bloomberg) -- Australia's dollar rallied to a two-year high as prospects for additional easing by the Federal Reserve increased demand for the South Pacific nation's higher- yielding assets.
The so-called Aussie rose above 95 U.S. cents for the first time since July 2008 yesterday as expectations for additional stimulus measures in the U.S. pushed yields on two-year U.S. debt to a record low, weakening the greenback. The difference between 10-year yields in Australia and the U.S. widened to 257 basis points yesterday, the most since July 2008.
"A clear difference in monetary policy stance between Australia and the U.S. should give an important catalyst for Aussie," said Kumiko Gervaise, a foreign-exchange analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan's largest online currency margin trading company.
Australia's currency traded at 95.68 U.S. cents, the most since July 2008, at 10:38 a.m. in Sydney from 95.52 cents in New York. It was at 81.13 yen from 81.27 yen yesterday.
New Zealand's dollar was at 73.68 U.S. cents from 73.51 cents and was at NZ$1.2985 per Australian dollar from NZ$1.2983 in New York.
The Federal Reserve said yesterday it's willing to ease monetary policy further to spur growth and support prices.
"The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate," the Federal Open Market Committee said yesterday in a statement in Washington.
RBA Minutes
In contrast, minutes released yesterday of the Reserve Bank of Australia's meeting this month showed policy makers said higher interest rates may be needed to cope with the nation's economic expansion.
The RBA raised borrowing costs in six quarter-percentage- point steps from October to May, taking the benchmark overnight cash rate target to 4.5 percent.
The Reserve Bank of New Zealand left its overnight cash rate unchanged at 3 percent on Sept. 16 after raising it in June and July. The central bank cut its building and inflation forecasts and said the Sept. 4 earthquake in Christchurch may reduce growth by 0.3 percentage point this quarter.
Relative Strength
The Australian dollar's 14-day relative strength index, or RSI, stayed above 70 for a third day, a sign the currency may be poised to fall after rallying too fast.
"Selling of the dollar against higher-yielding currencies such as the Aussie on expectations for additional easing has been overdone," said Kazumasa Yamaoka, a chief strategist at investment advisory company GCI Research Institute Ltd. in Tokyo. "Investors may need to cut back on huge long positions on the Aussie until they can get a clearer picture for actual action in the U.S."
Futures traders trimmed bets last week that the Australian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 56,669 on Sept. 14, compared with net longs of 56,966 a week earlier.
