The Aussie advanced for a fifth day and bond yields climbed after policy makers refrained from saying a weaker currency would help the economy in minutes today from their meeting this month. New Zealand’s dollar fell for the first time in three days against Australia’s after Reserve Bank of New Zealand Deputy Governor Grant Spencer said mortgage-lending restrictions could reduce the magnitude of rate rises.
The Australian dollar is being supported by “no new rhetoric on interest rates, and no new rhetoric on the currency front,” said David Forrester, a Singapore-based senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd. The Aussie may rise toward 96 U.S. cents, which would be a good level to sell, he said.
Australia’s dollar gained 0.5 percent to 95.33 U.S. cents at 5:23 p.m. in Sydney from yesterday, and touched the highest since June 19 at 95.39. It advanced 0.1 percent to NZ$1.1362. New Zealand’s currency added 0.4 percent to 83.91 U.S. cents.
The yield on Australia’s benchmark 10-year (GACGB10) government bond rose eight basis points, or 0.08 percentage point, to 4.2 percent, after touching 4.212 percent, the most since March last year. The three-year yield reached 3.16 percent, a level unseen since March.
The Reserve Bank of Australia repeated it retains the option of reducing rates as policy makers gauge the impact of “substantial” stimulus on the economy, minutes of the Oct. 1 meeting showed. “Members noted that the Australian dollar was still around 10 percent below its peak in April,” it said.
“You would conclude from these minutes that they were less likely to cut rates,” Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, wrote in a note to clients. “The most sensible assessment is that rates have reached their low point and will stay there for some time. This should put upward pressure on the exchange rate.”
The Australian dollar has gained 2 percent in the past month, the most after a 2.1 percent gain in the New Zealand dollar among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. Over the past six months it is the worst performer, falling 8.4 percent.
RBA Governor Glenn Stevens and his board left rates unchanged at a record-low 2.5 percent this month, as it had done on Sept. 3, after reducing borrowing costs by 2.25 percentage points since late 2011.
Traders see a 19 percent chance the RBA will reduce its benchmark rate by the end of this year, compared with 37 percent odds a month earlier, interest-rate swaps data compiled by Bloomberg show. They also see a 2 percent probability the RBNZ will raise its cash rate target from a record-low 2.5 percent in the same period.
Royal Bank of Canada pushed back its forecast for an RBA rate cut, which it projects will be the last in the current cycle, to the second quarter of next year from December. It cited a pickup in consumer and business confidence and signs of stability in China, Australia’s biggest trading partner, in a note today to clients.
“It’s hard to see what brings the RBA back to the table any time soon,” said Michael Turner, a debt and currency strategist at RBC in Sydney. “It wouldn’t surprise me if you get into a situation where the RBA is sounding a bit more positive, and the RBNZ starts to hike a bit slower than what’s priced in, and Aussie-kiwi goes a bit higher.”
Australia’s dollar will fall to 92 U.S. cents by year-end, according to the median forecast of analysts surveyed by Bloomberg News. New Zealand’s dollar will decline to 81 U.S. cents, according to a separate Bloomberg poll.
To the extent that the RBNZ’s mortgage-lending restrictions “dampen overall demand in the economy, they could also reduce the extent of interest-rate increases, and hence exchange-rate pressure,” Deputy Governor Spencer said in a speech in Auckland today, according to a text published on the central bank’s website. He reiterated that policy makers estimate the loan limits are the equivalent of a 30 basis-point increase in the official cash rate.
RBNZ Governor Graeme Wheeler has said the central bank is likely to start raising borrowing costs next year.
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