Aussie Trades Near Four-Month High Before Fed Decision

Australia’s dollar traded 0.4 percent from a four-month high against its U.S. counterpart as demand for riskier assets increased on speculation the Federal Reserve will signal additional stimulus measures when it concludes its meeting today.

The so-called Aussie erased earlier losses of as much as 0.4 percent versus the greenback. The New Zealand dollar advanced on prospects the Fed will implement a further round of quantitative easing, or QE, which would debase the U.S. currency. Demand for the South Pacific nations’ currencies was tempered after reports today indicated a slowdown in manufacturing in China, Australia’s biggest trading partner and New Zealand’s second-largest export destination.

“If the Fed goes ahead with QE, you would certainly expect the Aussie to be among the larger beneficiaries,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “The Aussie is finding support from a very broad range of buyers.”

The Australian dollar was at $1.0503 as of 4:17 p.m. in Sydney, unchanged from yesterday, when it climbed as high as $1.0538, the strongest level since March 27. It fell to as low as $1.0464 earlier today. The Aussie was little changed at 82.09 yen. New Zealand’s currency, known as the kiwi, bought 81.17 U.S. cents, 0.4 percent above yesterday’s close. It rose 0.4 percent to 63.44 yen after falling 0.6 percent in the previous two days.

Members of the Federal Open Market Committee will end their meeting today. While they refrained from introducing a third round of asset purchases at their June session, Chairman Ben S. Bernanke indicated last month that it’s an option.

September Meeting

Policy makers will probably wait until their meeting in September to start another round of purchases, according to the median estimates of economists in a Bloomberg News survey.

The MSCI Asia Pacific Index of shares lost 0.4 percent.

Australia’s 10-year government bond yield climbed one basis point, or 0.01 percentage point, to 3.12 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose three basis points to 2.79 percent.

The Aussie earlier declined as reports of weakening domestic manufacturing were compounded with data that showed a similar situation in China.

“The trend that most of the market has been concerned about, which is a moderation or significant slowdown in China’s growth momentum, seems to be still in place,” said Sacha Tihanyi, a strategist at Scotiabank in Hong Kong, a unit of Bank of Nova Scotia. (BNS) “On the margin, today’s Chinese data is not going to be supportive of the Aussie and kiwi.”

Manufacturing Slump

China’s manufacturing Purchasing Managers’ Index fell to 50.1 in July from 50.2 the previous month, according to a report today by the Beijing-based National Bureau of Statistics and the China Federation of Logistics and Purchasing. The figure is the lowest since November and compares with analysts estimates for an advance to 50.5.

The final reading for a separate purchasing managers’ index released by HSBC Holdings Plc and Markit Economics showed the gauge rose to 49.3 last month compared with 48.2 in June.

Australia’s manufacturing index slumped 6.9 points to 40.3, the weakest reading since June 2009 and fifth decrease in six months, according to a survey by the Australian Industry Group and PricewaterhouseCoopers released today.

For the three indexes, a reading below 50 indicates a contraction and above, expansion.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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