Volatility in the Aussie rose to the most in two weeks after meeting minutes showed policy makers said another interest-rate cut isn’t imminent. The 10-year government bond yield touched the highest in 16 months. New Zealand’s dollar tumbled against all its major peers, heading for its biggest loss against the greenback in six weeks, after the country’s central bank chief said it will impose bank lending restrictions, lessening the need for interest-rate increases.
“It’s clear that the RBA would welcome a further depreciation of the Aussie dollar, to assist the economy’s rebalancing,” said Alvin Pontoh, a Singapore-based strategist at TD Securities Inc. “It seems the RBA is willing to tolerate an exchange rate of around 90 U.S. cents for now.”
Australia’s currency dropped 0.76 percent to 90.40 U.S. cents as of 4:59 p.m. in Sydney, after earlier touching 90.37, the lowest since Aug. 8. Yesterday it rose as high as 92.33 before slumping 0.83 percent, the most since July 31. New Zealand’s dollar slid 1.2 percent to 79.69 U.S. cents, set for the biggest decline since July 5.
The 10-year bond yield in Australia rose as high as 4.05 percent, the most since April 2012, before ending the day at 3.98 percent from 4.02 percent yesterday. The three-year yield touched 2.8 percent, the highest since July 8. It closed at 2.73 percent from 2.77 percent the previous day.
The Australian dollar’s one-month volatility against its U.S. peer gained 80 basis points, or 0.80 percentage point, to 12.4 percent. It earlier reached 14.44 percent, the highest since Aug. 5, the day before the central bank cut its key lending rate to a record-low 2.5 percent.
“Members agreed that the bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further,” the RBA said in minutes of that meeting, released in Sydney today. “The course of the exchange rate would be important” in setting policy, it said.
The Aussie has rallied more than 2 percent since reaching a three-year low against the U.S. dollar on Aug. 5. In the past six months, it’s lost 11 percent, making it the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar has fallen 2.7 percent in that period.
“Aussie has failed to hold above that 92 U.S. cent level, so it’s pared back some of its recent gains,” said Emma Lawson, a Sydney-based foreign-exchange strategist at National Australia Bank Ltd. “We’ve had quite a run-up in the Aussie.”
Australia’s currency will weaken to 88 cents by the end of next year, according to the median estimate of analysts surveyed by Bloomberg News. They expect the kiwi to drop to 76 cents.
“Arguably the RBA is now trying to use its rates policy to coax the currency lower,” Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, wrote in a research note. “Further rate cuts in Australia remain in the balance.”
The central bank’s current easing cycle began in November 2011, when the benchmark rate was 4.75 percent. RBA Governor Glenn Stevens is trying to stimulate growth in manufacturing, construction and retail as a record mining-investment boom wanes.
Traders see 56 percent odds that the RBA will reduce the benchmark interest rate again by the end of the year, interest-rate swaps data compiled by Bloomberg show. They see a 14 percent chance that the Reserve Bank of New Zealand will raise its benchmark from an all-time low of 2.5 percent in the same period, compared with 28 percent probability yesterday.
The kiwi tumbled after Reserve Bank of New Zealand Governor Graeme Wheeler damped the outlook for higher borrowing costs by announcing that policy makers will impose bank lending restrictions to slow house-price growth.
Raising the benchmark interest rate “would risk causing the New Zealand dollar to appreciate sharply, putting further pressure on New Zealand’s export and import competing industries,” Wheeler said in a speech in Wellington today. The currency is “over-valued relative to what would be sustainable long-term,” he added.
The central bank will impose restrictions on low-deposit home lending from Oct. 1 to guard the financial system from a bubble that has made houses in the nation among the most overvalued in the world, according to the Organization for Economic Cooperation and Development.
“The timing may have surprised the market, which may have been expecting a background discussion rather than an explicit introduction” from Wheeler today, Imre Speizer, a market strategist in Auckland at Westpac Banking Corp. (WBC), wrote in a note to clients. The ability of the measures to cool the housing market “will in fact prove limited,” he wrote.
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