Australian Dollar Rises as Central Bank Cites Mining Boom's Inflation Risk

The Australian dollar rose for the first time in four days after the Reserve Bank of Australia said in minutes of its meeting this month that concern a mining boom will stoke inflation was a main consideration in its decision to raise the target lending rate.

“Given that we’re not quite at the neutral level yet, the RBA is likely to probably hike again in May if the inflation data in particular surprises to the upside,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. The minutes are “seen as supportive for the Aussie dollar,” she said.

Australia’s currency gained 0.8 percent to 93.11 U.S. cents at 12:03 p.m. in New York, from 92.39 cents yesterday. New Zealand’s dollar traded at 71.13 U.S. cents, compared with 71.12, after earlier advancing 0.5 percent.

The Aussie may be sold as it advances toward resistance near 92.75 cents and then 93.50, Trinh said. Resistance is a level where sell orders may be clustered.

Benchmark interest rates are 4.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Photographer: Gillianne Tedder/Bloomberg

Australian 50-dollar banknotes are arranged for a photograph in Sydney, on Dec. 11, 2009. Close

Australian 50-dollar banknotes are arranged for a photograph in Sydney, on Dec. 11, 2009.

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Photographer: Gillianne Tedder/Bloomberg

Australian 50-dollar banknotes are arranged for a photograph in Sydney, on Dec. 11, 2009.

Reserve Bank Governor Glenn Stevens has led the world in raising borrowing costs, after boosting the overnight cash rate target this month for the fifth time in six meetings.

Swaps trades indicated a 33 percent chance that Australia’s central bank will raise rates when it meets in May, according to a Credit Suisse Group AG index. The odds were 21 percent yesterday.

Aussie Versus Kiwi

Australia’s dollar ended two days of losses against the New Zealand currency as consumer prices in the smaller nation increased 0.4 percent in the first quarter, compared with the median forecast of economists for a 0.6 percent gain. The Aussie rose 0.8 percent to NZ$1.3086.

“The New Zealand economic recovery is occurring at a more tepid pace than some had expected,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This will support the case for the market to push back the expected timing of the first RBNZ hike to July.”

Reserve Bank of New Zealand policy makers meet next on April 29, and swaps traders have lowered their bets on interest- rate increases by the bank to 1.55 percentage points over the next 12 months, from 1.75 percentage points at the end of March, according to a separate Credit Suisse index.

Australian government bonds fell. The yield on 10-year notes added 6 basis points, or 0.06 percentage point, to 5.81 percent, according to data compiled by Bloomberg. The price of the 4.5 percent security due in April 2020 slipped 0.41, or A$4.10 per A$1,000 face amount, to 90.20.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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