Aussie Dollar Gains as Investors Pare Back Rate-Cut Bets
Australia’s dollar strengthened versus most of its 16 major counterparts as traders pared bets on interest-rate cuts amid speculation the nation’s economy will be strong enough to weather Europe’s debt crisis.
The so-called Aussie rebounded after touching its weakest level in 1 1/2 weeks yesterday before Reserve Bank of Australia policy makers meet next week, when they are forecast to keep the key rate unchanged. Demand for the Australian and New Zealand currencies was damped as Asian stocks fell and before Spanish Economy Minister Luis de Guindos outlines in parliament plans to use European funds to bail out the nation’s banks.
“The market’s pricing for the extent of RBA rate cuts looks overdone,” said Khoon Goh, a senior foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group Ltd. (ANZ) “I don’t think the Aussie will get sold off too heavily, unless we get a real deterioration in the euro zone debt crisis. Eventually we see the Aussie heading up towards the $1.04 level, probably by early next year.”
The Australian dollar rose 0.2 percent to $1.0034 as of 4:02 p.m. in Sydney after reaching 99.69 U.S. cents yesterday, the lowest since June 14. The Aussie added 0.2 percent to 79.89 yen after sliding 1.5 percent yesterday. New Zealand’s currency advanced 0.3 percent to 78.99 cents. It gained 0.3 percent to 62.89 yen, following a 1.3 percent decline yesterday.
The Aussie has lost 1.7 percent versus the U.S. dollar since Dec. 31. The kiwi has advanced 1.6 percent.
Australia’s 10-year government bond yield fell six basis points, or 0.06 percentage point, to 2.95 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 2.68 percent.
The MSCI Asia Pacific Index (MXAP) of shares slid 0.3 percent. The Standard & Poor’s 500 Index declined 1.6 percent yesterday, while the Stoxx Europe 600 Index fell 1.5 percent.
RBA officials will keep the overnight cash-rate target at 3.5 percent when they meet on July 3, according to the median estimate in a Bloomberg News survey of economists.
Interest-rate swaps data compiled by Bloomberg show traders see a better than 40 percent chance policy makers will keep the benchmark rate unchanged next week. That’s up from a more than 29 percent probability seen on June 19. Traders expect the RBA to cut the rate to a record 2.75 percent by October, the data show.
“In a world where there are concerns about slowing growth momentum, both Australia and New Zealand have been bright lights in terms of posting some fairly decent numbers of late,” ANZ’s Goh said.
New Zealand’s economy grew 2.4 percent in the first quarter from a year earlier, while Australia’s increased by 4.3 percent on the same basis, the fastest expansions for each nation since 2007, separate reports this month showed. Each nation’s gross domestic product rose by more than the strongest estimates provided by economists in Bloomberg News surveys.
The Australian dollar has declined 1.1 percent in the past three months, Bloomberg Correlation-Weighted Indexes show. Its New Zealand counterpart has fallen 0.2 percent, according to the gauge that tracks 10 developed-nation currencies.
Spain’s de Guindos will speak in parliament to explain the nation’s request for as much as 100 billion euros ($125 billion) to recapitalize its banks. Moody’s cut the long-term debt and deposit ratings of 28 Spanish lenders including Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), according to a statement yesterday.
Europe faces “a multi-pronged problem,” said Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd. (NAB) “There are many and varied issues and this will keep markets uncertain in the short term. The Aussie and kiwi will probably range-trade for the day, with a risk to the downside.”
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