Australia’s dollar climbed to the strongest in almost two weeks as traders bets reflected increased expectations the Reserve Bank won’t cut borrowing costs this year, buoying demand for the currency.
The Aussie headed for a five-day gain versus most of its major peers before a private report next week on service industries in China, Australia’s biggest trading partner. New Zealand’s currency has risen this week, rebounding from a loss in the period through Sept. 27 that was the biggest in a month.
“We’ve shifted up our year-end forecast for the Australian dollar,” said Robert Rennie, the Sydney-based chief currency strategist at Westpac Banking Corp. (WBC), which sees the Aussie at 95 U.S. cents by Dec. 31 from 92 cents previously. “Australian households are showing less signs of risk aversion. We’ve seen signs of stabilization and improvement in China.”
The Aussie added 0.6 percent to 94.46 U.S. cents at 4:40 p.m. in Sydney, after touching 94.48 cents, the strongest since Sept. 23. It’s up 1.4 percent this week. New Zealand’s currency gained 0.3 percent to 83.19 U.S. cents from yesterday and has climbed 0.6 percent since Sept. 27. It weakened 1.1 percent last week, the most since the period ended Aug. 23.
Australia’s 10-year (GACGB10) government bond yield touched 4.07 percent, the highest since Sept. 18. The yield on three-year debt peaked at 3.01 percent, a level unseen since Sept. 11. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.46 percent.
Interest-rate swaps data compiled by Bloomberg show traders see a 69 percent chance the RBA will keep its benchmark at 2.5 percent by its Dec. 3 meeting, up from 62 percent a month ago.
Westpac pushed back its forecasts for rate reductions by the RBA to February and May, from an earlier prediction of a 25-basis-point cut in November and another one in February, according to a report yesterday. National Australia Bank Ltd. also revised this week the timing of its call for a cut in borrowing costs to February, from November previously.
Markit Economics and HSBC Holdings Plc will on Oct. 8 release their September reading for Chinese services activity. The measure climbed to a five-month high in August. Government figures released yesterday showed a similar index climbed last month to the highest since March.
Commonwealth Bank of Australia (CBA) raised its year-end forecasts for the Australian and New Zealand dollars.
The nation’s biggest lender now sees the Aussie at 94 cents by Dec. 31, from 92 previously. It cited a “reduced rate of appreciation” in the U.S. dollar and “the end of the modest three-year cyclical growth slowdown in China’s economy,” according to an e-mailed note today by analysts including Richard Grace, the bank’s Sydney-based chief currency strategist and head of international economics.
CBA predicts the kiwi will end 2013 at 83 cents, from a previous estimate of 78, saying it expects the Reserve Bank of New Zealand to start raising borrowing costs in March. Traders see a 65 percent chance officials will boost the benchmark to 2.75 percent or higher by then, swaps data compiled by Bloomberg show.
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