Aussie Holds Three-Day Gain Against Yen as China Concern Eases

Australia’s dollar held a three-day gain versus the yen after China’s central bank reassured investors it will stabilize money markets and ease the credit squeeze in the world’s second-largest economy.

Australian bonds fell after Treasuries slumped on signs of improvement in the U.S. economy, adding to the case for the Federal Reserve to reduce monetary stimulus. New Zealand Finance Minister Bill English said the kiwi dollar is still “a bit overvalued” as the currency headed for a 7.7 percent drop this quarter, the sharpest slide since the three-months ended September 2011.

“The Aussie is finding a little bit of support and fears easing in China are a big factor behind that,” said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “It makes more sense if China wanted to tighten credit, they’d do it through some other way rather than withholding liquidity from the money market.”

The Australian dollar was little changed at 90.60 yen at 10:20 a.m. in Sydney from yesterday, after climbing 1.2 percent in the previous three sessions.

The Aussie slid 0.2 percent to 92.40 U.S. cents. On June 24, it touched 91.48, the lowest since September 2010.

The currency pair’s one-month implied volatility dropped 36 basis points to 14.3 percent, after surging to 15.5 percent on June 24, the highest since December 2011.

New Zealand’s dollar fell 0.2 percent to 77.27 U.S. cents. It was little changed at 75.74 yen. For the month, the kiwi weakened 2.7 percent against the greenback.

Australian Bonds

The yield on Australia’s 10-year government bond rose six basis points to 3.85 percent. The benchmark rate reached 4.04 percent on June 24, the highest since April 2012. The three-year rate added four basis points to 2.91 percent.

The CSI 300 Index (SHSZ300) of China’s biggest companies fell 0.3 percent yesterday, paring a plunge of as much as 6.8 percent, as the People’s Bank of China said it will use tools to safeguard stability in money markets and tight liquidity is set to ease.

China’s central bank has provided liquidity to some financial institutions to stabilize money-market rates and will use short-term liquidity operations and standing lending-facility tools to ensure steady markets, according to a statement posted to its website yesterday.

China is the biggest trading partner for both Australia and New Zealand.

Fed Chairman Ben S. Bernanke signaled on June 19 the Fed may “moderate” its $85 billion in monthly bond purchases, known as quantitative easing, later this year and end it mid-2014 if economic improvement continues.

U.S. gross domestic product rose at a 2.4 percent annualized rate in the first quarter, from 0.4 percent in the previous three months, the Commerce Department will probably confirm today according to the median forecast in a Bloomberg News survey of economists.

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

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