The Australian and New Zealand dollars touched the highest in more than four years against the yen after the Bank of Japan (8301) expanded monetary stimulus, boosting the allure of higher-yielding assets.
“If you’ve got the BOJ pressing the long end of the yield curve, then Aussie-yen as a carry is going to be pretty attractive,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk management company. “One of the quickest ways to generate inflation is to weaken the currency and it’s a happy byproduct of their policy.”
The Australian dollar declined 0.2 percent to 100.36 yen as of 4:26 p.m. in Sydney after touching 101.13, the highest since August 2008. The kiwi fell 0.2 percent to 80.99 yen, after reaching 81.61, the strongest since July 2008.
The Aussie slipped 0.2 percent to $1.0419 and is little changed this week. The New Zealand dollar slid 0.2 percent to 84.09 U.S. cents and has gained 0.5 percent since March 29.
“What we’re seeing now is very much a different transmission channel where the strengthening dollar-yen is leading to some upward pressure on other dollar-Asia crosses,” said John Horner, a currency strategist at Deutsche Bank AG in Sydney. “With Australia trading quite closely with a number of those Asian currency pairs, it’s translating into pressure on Aussie as well.”
The BOJ doubled its monthly bond purchases and lengthened the maturity of the debt it can buy at its policy meeting yesterday, as it targets 2 percent annual inflation in two years. Governor Haruhiko Kuroda said there is no concern of an asset bubble now, ahead of being confirmed for a full five-year term today.
“It’s all about Kuroda-san coming through with the goods,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. (WBC) in Sydney. “Japanese yields are falling to record lows and that’s re-emphasized the allure of Australia’s higher returns.”
Japan’s 10-year government bond yield touched a record low 0.315 percent. Australia’s government bonds gained, with the yield on the 10-year note sliding nine basis points to 3.31 percent after earlier touching 3.28 percent, the lowest since March 4.
The yen swayed between gains and losses versus the Aussie and kiwi after the Tokyo Stock Exchange issued and then lifted circuit breakers on government bond futures as they plunged from record-high levels.
“The market was a bit spooked on the back of that,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “It’s just jittery markets overall.”
Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in Japan and the U.S.
The Fed’s current policy is to keep ultra-low interest rates at least as long as the unemployment rate remains more than 6.5 percent. Fed Vice Chairman Janet Yellen said yesterday the central bank should focus on lowering unemployment even if inflation accelerates.
Demand for the Aussie and kiwi was supported before a monthly U.S. report forecast to show a slowdown in the job market recovery. Employers probably hired 190,000 workers in March, down from 236,000 the month before, according to the median estimate of economists surveyed by Bloomberg News. The jobless rate is tipped to remain at 7.7 percent.
A private report on payrolls on April 3 showed the fewest jobs were added in March in five months.
“Expectations for payrolls have come down,” said Horner at Deutsche Bank in Sydney. “We would expect that weaker payrolls, should it be seen, would see Aussie climb against the U.S. dollar.”
The Australian dollar may gain if an Australian employment report next week validates an unexpected 71,500 rise in hiring in February, the most in almost 13 years. Payrolls fell by 7,500 in March according to a Bloomberg economist poll ahead of the April 11 report.
“The risk in terms of moving the market is that it ends up being a stronger number, because if it’s a very large negative then everyone will just say, ‘Well, we knew that last number was rubbish’,” said Sean Callow, a Sydney-based senior foreign- exchange strategist at Westpac.
Interest-rate swaps data compiled by Bloomberg show traders see a 23 percent chance the Reserve Bank will cut the benchmark rate at its next meeting on May 7.
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