Aussie, N.Z. Dollars Climb on Demand for Higher-Yield Assets
The Australian and New Zealand dollars climbed, reversing earlier declines, after European leaders announced plans to support funding for Spain, reducing demand for the safest assets.
The Aussie rose versus most of its 16 major counterparts after European Union President Herman Van Rompuy said euro-area leaders agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status. Officials also decided to relax conditions on potential aid for Italy. New Zealand’s currency rallied as Asian stocks gained the most in six months.
“Anything that looks to be supportive of Spain and Italy in raising funds is going to be positive,” said Sacha Tihanyi, a strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. (BNS) “As long as these headlines continue to come out with this sort of flavor, we can see the Aussie and kiwi get squeezed a bit higher.”
The Australian dollar gained 1.9 percent to $1.0238 as of 5 p.m. in New York. It climbed 2.4 percent to 81.698 yen. New Zealand’s currency, known as the kiwi, rose 1.7 percent to 80.13 U.S. cents and gained 2.1 percent to 63.95 yen.
The MSCI Asia Pacific Index (MXAP) of shares added 2 percent, the biggest gain since Dec. 21.
The Dollar Index fell as much as 1.5 percent, ending a two- day rally as the EU’s Spanish bond decision decreased investor appetite for risk-averse assets. The index is used by IntercontinentalExchange Inc. to track the greenback against the currencies of six U.S. trading partners.
The Australian dollar advance 5.2 percent against the greenback this month, reversing its previous decline this year to a gain of 0.3 percent. New Zealand’s currency has strengthened 6.3 percent since May 31, the biggest gainer after the Mexican peso among the greenback’s 16 major counterparts. It has gained 3.1 percent this year.
The kiwi weakened earlier versus the dollar and yen after government data showed New Zealand home-building permits fell 7.1 percent last month following a revised 7.6 percent decline in April, completing the first consecutive slide since March 2011.
The Aussie advanced the most since October against its U.S. counterpart amid speculation the Reserve Bank of Australia will keep borrowing costs steady at a meeting July 3.
Officials will probably keep the overnight cash rate target at 3.5 percent, according to all economists in a Bloomberg News survey.
Interest-rate swaps data compiled by Bloomberg show traders see about a 68 percent chance for no change to the central bank’s key rate. That’s up from a 33 percent probability seen June 22. They expect the RBA to cut the rate to a record 2.75 percent or lower by December, the data show.
“The market has taken a view that a move from the RBA in July seems a lot less likely now,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. (WBC) “Expectations for a rate cut have been pared back, and that certainly helps the currency trade more resiliently.”
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