The Australian dollar traded within 2 U.S. cents of parity with the greenback after the nation’s central bank said its decision to keep interest rates unchanged this month had been “finely balanced.”
The currency strengthened earlier after Reserve Bank of Australia policy makers said in minutes of their Oct. 5 meeting released today that benchmark rates would have to rise “at some point.” New Zealand’s dollar fell for a fourth day against the U.S. currency after a report showed the nation’s house prices fell in the three months ended June 30.
“The minutes reinforce the argument that there could be another hike coming in November or December given that the RBA seems very comfortable with where the currency is,” said Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney.
Australia’s currency traded at 98.48 U.S. cents as of 5:00 p.m. in Sydney from 98.89 cents in New York yesterday, after advancing to 99.60 cents following the release of the RBA minutes. The currency climbed as high as $1.0004 on Oct. 15. The so-called Aussie dropped to 80.29 yen from 80.37.
New Zealand’s dollar bought 75.35 cents from 75.56 cents, and traded at 61.43 yen from 61.39 yen.
‘Hawks and the Doves’
The decision to keep borrowing costs unchanged this month hinged on expectations the economy would grow at trend in the near-term, a softening in credit growth and a strengthening Australian dollar which would “effectively be tightening financial conditions at the margin,” RBA policy makers said in the minutes. The decision was appropriate “pending evaluation of further information at the next meeting,” they said.
“There’s something for the hawks and the doves in these minutes,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “There isn’t enough here to suggest the currency is going to be off to the races. This may not be enough for the Aussie to push through parity in a definitive fashion.”
The “next key risk event” domestically will be the consumer-price data release on Oct. 27, he said.
Swaps traders raised to 40 percent the chance the central bank will end a five-month pause and boost the key rate to 4.75 percent on Nov. 2, a Credit Suisse AG index showed. The probability of an increase was 36 percent yesterday.
A New Zealand house price index dropped 1 percent from the first quarter when it rose 0.1 percent, according to Quotable Value New Zealand Ltd., the government valuation agency.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose two basis points to 3.77 percent.
Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
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