The Australian dollar traded 0.3 percent from the highest level in three weeks on speculation the Federal Reserve will signal further stimulus that tends to debase the U.S. currency.
The so-called Aussie and New Zealand’s dollar maintained two days of gains after Germany’s top constitutional court cleared the way yesterday for the nation’s ratification of the euro area’s permanent bailout fund. New Zealand’s currency, known as the kiwi, was close to a more-than four-month high after the Reserve Bank kept its benchmark interest rate unchanged today.
“The markets are seeing a good chance that the Fed will announce QE3 today,” Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, a unit of Japan’s biggest listed bank, said, referring to a third round of asset purchases known as quantitative easing. “That’s lending support to risk currencies like the Aussie and kiwi.”
The Australian dollar was little changed at $1.0470 as of 4:02 p.m. in Sydney from the close yesterday, when it touched $1.0506, the strongest since Aug. 23. It fetched 81.34 yen from 81.48. New Zealand’s dollar traded at 82.14 U.S. cents from 82.08, after yesterday rising as much as 0.8 percent to 82.38, the highest since April 30. It bought 63.84 yen from 63.91.
Australian government bonds declined for a second day, with the yield on 10-year notes rising six basis points, or 0.06 percentage point, to 3.23 percent. It earlier touched 3.25 percent, the most since Aug. 27. The MSCI Asia Pacific Index of stocks added 0.2 percent following a 0.4 percent advance in the MSCI World Index (MXWO) yesterday.
The Fed will probably announce today a new round of bond purchases, according to almost two-thirds of economists in a Bloomberg News survey. The central bank may also commit to hold interest rates close to zero into 2015, the poll showed. The previous two series of quantitative easing totaling $2.3 trillion have failed to revive the labor market, which Fed Chairman Ben S. Bernanke said last month is a “grave concern.”
“We suspect the market has priced in too high of odds of QE3,” strategists at Citigroup Inc. including Steven Englander, head of Group-of-10 currency strategy in New York, wrote in a note to clients yesterday. “With that in mind, any rally in risky assets resulting from the Fed pursuing QE3 might be small and short-lived.”
Germany’s Federal Constitutional Court yesterday dismissed motions that sought to stop the government from contributing to the rescue facility known as the European Stability Mechanism, a 500 billion-euro ($646 billion) fund. The legal challenge delayed efforts by Chancellor Angela Merkel and other euro-area policy makers to stem the region’s debt crisis.
In New Zealand, Reserve Bank Governor Alan Bollard and his board left the official rate at 2.5 percent and signaled it would remain unchanged through mid-2013.
“New Zealand’s trading partner outlook remains weak,” Bollard said. In the domestic economy, “fiscal consolidation is constraining demand growth, and the high New Zealand dollar continues to undermine export earnings and encourage substitution toward imported goods and services.”
The kiwi has gained 3.5 percent so far this year, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
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