Aussie Is Near 4-Month High After BHP Raises Iron Ore Projection

Australia’s dollar was near a four-month high after BHP Billiton Ltd. (BHP) raised its production forecast for iron ore, the country’s biggest export.

The extra yield that investors can get by holding the South Pacific nation’s two-year government notes instead of similar-maturity Treasuries was near the highest in six months, as investors pared bets that the Reserve Bank of Australia will lower its benchmark rate. Demand for the Aussie and kiwi was bolstered before the U.S. releases jobs data amid speculation the Federal Reserve will delay reducing stimulus that has capped bond yields in the world’s largest economy.

Market participants “are skeptical that the RBA will ease further,” said Imre Speizer, an Auckland-based market strategist at Westpac Banking Corp. “As a result, they have been quick to push up interest rates in Australia, and that in turn has increased the carry attractiveness of the Aussie dollar in the same way that the kiwi is attractive,” he said, referring to differences in borrowing costs.

The Aussie was little changed at 96.54 U.S. cents at 4:45 p.m. in Sydney after reaching 96.79 yesterday, the highest since June 4. New Zealand’s dollar was at 84.52 U.S. cents after losing 0.6 percent to 84.55. It advanced to as high as 85.25 on Oct. 17, a level unseen since May 6.

Total iron ore output will rise to 212 million tons this year, Melbourne-based BHP, the world’s largest mining company, said today in a statement. The company’s previous forecast was 207 million tons. Imports of the steelmaking material in China, Australia’s largest overseas market, climbed to an unprecedented 75 million tons last month.

“The Chinese economy has held up reasonably well,” Westpac’s Speizer said. “That is supportive for the Australian economy.”

Yield Differential

Yields on Australia’s two-year notes rose two basis points, or 0.02 percentage point, to 2.74 percent, compared with 0.31 percent for U.S. Treasury debt. The gap between the two widened to 2.5 percentage points on Oct. 16, the most since April 22.

The U.S. Labor Department may say today employers added 180,000 jobs last month after boosting positions by 169,000 in August, according to the median estimate of economists surveyed by Bloomberg News. The unemployment rate probably held at 7.3 percent, compared with the Fed’s longer-run forecast of 5.2 percent to 5.8 percent.

The Fed will delay the first reduction in its bond purchases until March after the partial government shutdown slowed fourth-quarter growth and interrupted the flow of data, economists said. Policy makers will pare the monthly pace of asset buying to $70 billion from $85 billion at their March 18-19 meeting, according to a Bloomberg poll of economists conducted Oct. 17-18.

RBA Outlook

Traders see a 20 percent chance that the RBA will cut its benchmark interest rate from 2.5 percent this year, according to data compiled by Bloomberg on overnight-index swaps. The likelihood of a rate reduction was estimated at 46 percent at the end of last month.

JPMorgan Chase & Co.’s Global FX Volatility Index was at 7.77 after touching 7.73 last week, the lowest since Jan. 9.

“We’ve seen market volatility levels falling substantially, and as far as currencies are concerned, that’s the reason that the U.S. dollar has been on the defensive,” Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said in an interview with Bloomberg Television. The Aussie still has “some semblance of positive carry” among its Group of 10 peers, he said.

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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