Kiwi Rises to 4-Month High on N.Z. Growth; Aussie Falls on Rates

New Zealand’s currency reached a four-month high against the dollar after data showed the South Pacific nation’s economy beat estimates in the second quarter.

Associate Finance Minister Steven Joyce said earlier this week that gross domestic product was projected to have shrunk during the period. Australia’s dollar fell against most major peers as speculation the Reserve Bank will cut interest rates damped the currency’s allure, even after the U.S. central bank maintained bond buying that has supported global asset prices.

“The kiwi currency obviously got a huge boost from the decision by the U.S. Federal Reserve,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. The GDP report “was seen as a positive by the market and that provided another boost.”

New Zealand’s dollar jumped 0.5 percent to 84.11 U.S. cents as of 5:11 p.m. in Sydney after touching 84.13, the highest since May 10. Australia’s currency was little changed at 95.21 U.S. cents after surging as much as 1.9 percent to 95.29 yesterday, the strongest since June 19.

New Zealand’s gross domestic product grew 0.2 percent in the April-June period from the first quarter, the government statistics bureau reported today. Joyce said on Sept. 17 that his office expected the economy contracted 0.2 percent in the second quarter. GDP rose 2.5 percent from a year earlier, compared with the 2.3 percent forecast in a Bloomberg News survey of economists.

Fed Policy

The Fed yesterday maintained its $85 billion pace of monthly debt purchases, while economists surveyed by Bloomberg had projected it would dial down the quantitative-easing program by $5 billion. Fed Chairman Ben S. Bernanke said conditions in the U.S. job market are still far from what policy makers would like to see.

Ten-year Treasury yields dropped 16 basis points in New York yesterday, the most since October 2011. The Standard & Poor’s 500 Index (SPX) of U.S. shares jumped 1.2 percent to a record.

Both the Aussie and kiwi gained versus the yen as the MSCI Asia Pacific Index of shares climbed 2.3 percent, sapping demand for lower-yielding assets. Australia’s currency advanced 0.7 percent to 93.88 yen, a level unseen since June 6. The New Zealand dollar surged as much as 1.3 percent to 82.98 yen, the strongest since May 28.

Australian Bonds

Ten-year Australian bond yields tumbled 18 basis points to 3.88 percent today, the biggest drop since Aug. 5. Three-year yields fell 15 basis points to 2.77 percent, nearing the RBA’s 2.5 percent benchmark rate. A basis point is 0.01 percentage point.

“Given that markets were widely anticipating a tapering and that hasn’t happened, and they seem to be less committed about when tapering will happen, you saw an immediate reaction in equity, bond, commodity and currency markets,” said Besa Deda, the chief economist at St. George Bank Ltd. in Sydney. “The long end of the Australian bond market will find support because it’s heavily influenced by what happens in the U.S. bond market.”

The Aussie has dropped 8.3 percent in the past six months against the greenback, the worst performer among Group of 10 currencies. The kiwi appreciated 2 percent during the period.

There’s a 54 percent chance the Reserve Bank of Australia will lower its benchmark rate, already at a record low 2.5 percent, by April, overnight-index swaps data compiled by Bloomberg show. The cash-rate target has been reduced from 4.75 percent in 2011.

“If Australia’s policy rate was as high as it used to be, investors would expect funds to flow to the Aussie from the greenback after the Federal Reserve refrained from tapering,” said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. “But the Aussie no longer has the appeal of being a high-yielding asset.”

The Reserve Bank of New Zealand said on Sept. 12 that interest-rate increases will likely be required next year from the all-time low of 2.5 percent as inflation picks up. Traders see about a 93 percent chance the RBNZ will raise the benchmark rate by April, data on swaps show.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

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

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