The Australian dollar traded near its strongest levels since mid-May after a global rally in stocks and declining volatility boosted demand for higher- yielding assets.
The Aussie climbed the most in a week versus New Zealand’s currency as Russia said it may add the Australian and Canadian dollars to its reserves for the first time after fluctuations in the greenback and euro. Both South Pacific nations’ currencies rose yesterday as the Standard & Poor’s 500 Index closed above its average level in the past 200 days, signaling the stocks gauge may extend gains.
“The S&P 500 closed above its 200-day moving average and volatility is settling down, which is supportive for risk continuing higher,” said Imre Speizer, a market strategist in Wellington with Westpac Banking Corp. “The bias for the Australian and New Zealand dollars is to the upside.”
Australia’s currency traded at 86.40 U.S. cents as of 4:07 p.m. in Sydney from 86.56 cents in New York yesterday. It rose as high as 86.67 on June 14, the strongest level since May 18. The currency bought 79.05 yen from 79.16 yen.
New Zealand’s dollar fetched 69.45 U.S. cents from 69.90 cents in New York and touched a near one-month high of 70.21 cents on June 14. It bought 63.55 yen from 63.92. The kiwi dropped 0.5 percent to NZ$1.2439 per Aussie.
Australia’s dollar may gain toward 87 U.S. cents and New Zealand’s currency may reach 71 cents this week, Speizer said.
The S&P 500 yesterday rose 2.4 percent to 1,115.23, exceeding its 200-day moving average, which is considered significant by investors who base trading decisions on chart patterns. The Chicago Board Options Exchange Volatility Index, or VIX, fell to a one-month low yesterday. The MSCI Asia Pacific Index climbed 1.1 percent and crude oil reached a one-month high.
The Aussie and kiwi dollars today pared some of this month’s 2 percent advance on speculation their gains may have come too rapidly.
“The fact that we’ve had quite a strong rally is perhaps making investors a little nervous about how much further it can go in the short term,” said Darren Heathcote, head of trading at Investec Bank (Australia) Ltd. in Sydney. “We need a few days of stability in the markets to convince investors that we’re going to go higher.”
If the Aussie can “consolidate” above 85 U.S. cents then it may target 91 U.S. cents, he said.
Declines in New Zealand’s dollar were limited after a report by Westpac Banking Corp. and McDermott Miller Ltd. showed consumer confidence rebounded in the second quarter following a decline in the nation’s unemployment rate.
Russia, which holds the world’s third biggest international reserves, said it was considering including the Australian dollar in its holdings.
“Adding the Australian dollar is being discussed,” Alexei Ulyukayev, the central bank’s first deputy chairman, said in an interview at an event hosted by Bloomberg in Moscow. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” with the currency.
U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukayev said in November.
Australian bond futures fell. The 10-year contract for September delivery was at 94.545 on the Sydney Futures Exchange from 94.625 yesterday. The implied yield stood at 5.46 percent. The implied yield on three-year futures was 4.93 percent.
The yield on Australia’s 10-year note added seven basis points, or 0.07 percentage point, to 5.43 percent, according to data compiled by Bloomberg. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, slipped to 4.30 percent from 4.31 percent.
Key interest rates are 4.5 percent in Australia and 2.75 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.