The Australian and New Zealand dollars climbed for a third day as U.S. economic reports eased concern the world’s largest economy is faltering, boosting demand for higher-yielding assets.
The so-called Aussie headed for its biggest monthly gain versus its U.S. counterpart since January as traders added to bets the Reserve Bank of Australia will keep rates unchanged next week as long as Europe’s debt crisis doesn’t worsen. New Zealand’s currency, nicknamed the kiwi, was set for the second- biggest gain in June among the greenback’s 16 major peers as Asian stocks extended a global advance.
“There seems to be sufficient life in the U.S. economy,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. The RBA is “saying it will really only ease with further unsettling news from Europe. The Aussie has the potential to edge higher on the fact that our interest rates seem stable for the time being.”
The Australian dollar rose 0.4 percent to $1.0115 as of 3:50 p.m. in Sydney. It bought 80.34 yen from 80.36 yesterday. New Zealand’s currency climbed 0.5 percent to 79.52 U.S. cents and gained 0.1 percent to 63.17 yen.
The Aussie is set for a 3.9 percent advance against the dollar this month, paring its decline this year to 0.9 percent. The kiwi has strengthened 5.5 percent since May 31, the biggest gainer after the Mexican peso among the greenback’s 16 major counterparts. It has climbed 2.3 percent this year.
Australia’s 10-year government bond yield was at 2.98 percent from 2.97 percent yesterday. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 2.69 percent.
The MSCI Asia Pacific Index of shares rose 1 percent after the Standard & Poor’s 500 Index added 0.9 percent yesterday. The Stoxx Europe 600 Index gained 1.4 percent.
Interest-rate swaps data compiled by Bloomberg show traders see about a 59 percent chance policy makers will keep the benchmark rate unchanged at 3.5 percent when they meet on July 3. That’s up from a 35 percent probability seen on June 21. Traders expect the RBA to cut the rate to a record 2.75 percent or lower by November, the data show.
In the U.S., orders for goods meant to last three years rose 1.1 percent last month, the first increase since February, a Commerce Department report showed yesterday. Pending home sales climbed 5.9 percent after slumping 5.5 percent in April, according to data from the National Association of Realtors.
European Union heads of government will gather in Brussels today to start a two-day summit. They are set to discuss a plan for closer integration seen playing out over more than a decade.
Both the Aussie and kiwi have risen more than 0.6 percent in the past three months, according to Bloomberg Correlation- Weighted Indexes, which track 10 developed-nation currencies.
Increased use of the two currencies for diversification purposes by entities including global central banks and sovereign wealth funds may be helping to keep volatility low, according to Andrew Salter, a strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney.
“These institutions are buying Australian dollar and New Zealand dollar assets and are re-balancing their portfolios,” Salter said. “Their re-balancing process typically opposes any price moves, so that’s probably what’s keeping volatility contained, in addition to the fact that they don’t divest their holdings regularly.”
The implied volatility of three-month options for Group of Seven currencies was 9.9 percent yesterday, down from this year’s high of 12.3 percent reached on Jan. 2, according to the JPMorgan G7 Volatility Index. A drop makes investments in currencies with higher rates more attractive because it shows the risk is lower that market moves will erase profits on such trades.
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