BLBG: Australian Dollar Trades Near Two-Year High on Increased Risk Appetite
The Australian dollar traded near its strongest level in two years against the greenback as speculation the Federal Reserve will expand stimulus measures boosted demand for higher-yielding assets.
The so-called Aussie has been the second-best performer this quarter among its 16 most-traded counterparts versus the U.S. currency as swaps indicate a 66 percent chance the central bank will increase interest rates next week. New Zealand’s dollar headed for a monthly gain as speculators increased wagers to the most this year that the currency will strengthen.
“It’s still a risk-on story that you’re looking for, and any data that signals the world is doing better will help propel the Aussie higher,” said Tony Allen, head of currency trading in Wellington at ANZ National Bank Ltd., New Zealand’s biggest lender. “A continuation of U.S. dollar weakness sentiment” is likely, he said.
Australia’s dollar traded at 95.80 U.S. cents as of 4:29 p.m. in Sydney from 95.92 cents last week in New York, after earlier climbing to 96.25 cents, the strongest since July 2008. The currency has gained 14 percent this quarter and 6.7 percent since the start of the year. The Aussie bought 80.71 yen from 80.77 yen.
New Zealand’s dollar bought 73.31 cents from 73.40 cents, set for a 4.9 percent gain in September. The so-called kiwi bought 61.75 yen from 61.82 yen.
The MSCI Asia Pacific Index of shares rose 1.2 percent, the most in two weeks. Benchmark rates are 4.5 percent in Australia and 3 percent in New Zealand, compared with as low as zero in the U.S., attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.
Futures Traders
Fed Chairman Ben S. Bernanke and fellow policy makers hinted last week they are willing to embark on another round of so-called quantitative easing asset purchases to spur growth and support prices.
Futures traders increased bets the New Zealand and Australian dollars will gain against the greenback, figures from the Washington-based Commodity Futures Trading Commission showed on Sept. 24.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the kiwi compared with those on a drop -- so-called net longs -- was 18,408 on Sept. 21, compared with 16,839 a week earlier. Net longs on the Aussie were at 64,324 on Sept. 21, the biggest bet on gains since April.
Commodity Currencies
“The positioning data point to larger U.S. dollar short positions, with investors favoring the commodity currencies,” Barclays Capital analysts including Singapore-based David Forrester wrote in a note to clients. “By historical standards, only the Australian dollar positioning is approaching extreme levels.”
The yield on New Zealand’s 10-year bonds dropped below Australia’s for the first time in two years as growth in the smaller nation slows.
The yield on benchmark New Zealand notes was 2.2 basis point less than for similar-maturity Australian debt after a government report last week showed second-quarter growth was less than a third of the pace economists forecast. The report added to the case for central bank Governor Alan Bollard to keep borrowing costs unchanged until 2011.
“New Zealand’s Reserve Bank is well and truly out of play for the rest of this year,” said Khoon Goh, head of market economics and strategy in Wellington at ANZ National Bank Ltd., New Zealand’s biggest lender. “Kiwi bond yields have gone quite low and there’s potential they could go lower, particularly if the market starts to look for more quantitative easing from the U.S. Federal Reserve.”
The yield on New Zealand’s 10-year note fell to 5.11 percent, the lowest since April 2009, according to data compiled by Bloomberg. The two-year swap rate, a fixed payment made to receive floating rates, fell three basis points to 3.70 percent.
Australian bond futures fell, with the 10-year contract for December delivery dropping to 94.85 on the Sydney Futures Exchange from 94.92 last week. The implied yield on the futures rose eight basis points to 5.16 percent.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
