New Zealand’s dollar rose to a near six-month high versus the yen after the central bank left interest rates unchanged and said market sentiment has improved.
The so-called kiwi gained for a second day against the U.S. dollar after newly installed Reserve Bank of New Zealand Governor Graeme Wheeler said inflation is expected to accelerate. Australia’s dollar advanced to the highest in a month versus the yen as swaps traders reduced bets that central bank Governor Glenn Stevens will cut the nation’s benchmark borrowing costs next month.
“Wheeler disappointed those in the market who had been expecting an easing signal,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC) “The market was fully priced for a January rate cut, and that pricing will be at least partially unwound.”
The New Zealand dollar reached 65.89 yen, the highest since April 30, before fetching 65.86 as of 4:40 p.m. in Sydney, 0.6 percent higher than yesterday’s close in New York. It climbed as much as 0.4 percent to 82.35 U.S. cents, a level unseen since Oct. 9, and later traded at 82.25.
The Australian dollar rose 0.5 percent to 83.06 yen, the strongest since Sept. 14. The so-called Aussie added 0.1 percent to $1.0367.
The RBNZ expects annual inflation to head back to the middle of its 1 percent to 3 percent target range from 0.8 percent in the third quarter, Wheeler said in a statement. Improved market sentiment suggests that risks to the global outlook are “more balanced,” he said.
Wheeler left the official cash rate unchanged at 2.5 percent, the highest among major developed economies after Australia.
There had been “growing concern that the shift in leadership at the RBNZ could see a more dovish turn in policy,” Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, wrote in a research note today. “Since the RBNZ did not live up to these dovish expectations, the door may now be open for more New Zealand dollar participation in a further rise in risk sentiment.”
New Zealand Economic Development Minister Steven Joyce said today that the exchange rate is challenging for some exporters. It will be no surprise if economic growth slows in the second half, he said in parliament.
Australia’s statistics bureau said yesterday the trimmed mean inflation rate accelerated to 2.4 percent in the three months ended Sept. 30, surpassing the 2.2 percent rate estimated by economists.
Overnight-index swaps data compiled by Bloomberg show traders see a 64 percent chance Australia’s central bank will lower its key rate to 3 percent at its Nov. 6 meeting from its current level of 3.25 percent. That compares with a 95 percent likelihood signaled on Oct. 23, the day before the inflation report was released.
Australia’s benchmark 10-year bond yield rose as much as five basis points, or 0.05 percentage point to 3.26 percent, surpassing the Reserve Bank of Australia’s cash target for the first time since August.
The MSCI Asia Pacific Index (MXAP) of shares advanced 0.3 percent, snapping a four-day decline and boosting the allure of higher- yielding currencies. Shares extended gains after the Nikkei reported the Bank of Japan (8301) will consider increasing its asset- purchase program by 10 trillion yen ($125 billion) at its policy meeting on Oct. 30.
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