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Aussie Strengthens Before Fed Meeting Tomorrow, RBA Stevens Talk

Australia’s dollar rose versus most of its major counterparts before the Federal Reserve begins a two-day meeting tomorrow amid forecasts U.S. policy makers will maintain bond purchases that tend to devalue the greenback.

The Aussie advanced against the greenback for the first time in four days as Asian stocks rallied, supporting demand for higher-yielding assets. Equities slid last week as the biggest jump in Chinese money-market rates since June’s record cash crunch raised concern Australia’s largest trading partner was reining in growth. New Zealand’s currency gained on speculation central bank Governor Graeme Wheeler will signal interest-rate increases as he decides on monetary policy this week.

“The market is looking for further confirmation that tapering is still some time off, and if we do get that we’ll get some more U.S. dollar weakness,” said Jim Vrondas, the chief currency and payment strategist at OzForex Ltd. in Sydney. “We should see some reversal of the nervousness that we saw toward China and the Aussie dollar last week, and a move back toward the 97-cent mark.”

Australia’s dollar gained 0.2 percent to 96.06 U.S. cents as of 5:09 p.m. in Sydney after falling 1 percent last week, the biggest five-day decline since August. The Aussie rose 0.5 percent to 93.80 yen.

The currency will face selling pressure toward the 97.50 U.S. cent level, Vrondas said.

Australia’s 10-year bond yield climbed four basis points, or 0.04 percentage point, to 4.01 percent. It fell 15 basis points last week. The MSCI Asia Pacific Index of regional shares advanced 1.1 percent.

Taper Timing

Fed policy makers, meeting tomorrow and Oct. 30, are trying to gauge the strength of the U.S. expansion. The central bank will wait until its March 18-19 meeting to pare the monthly pace of asset buying to $70 billion from $85 billion, according to the median of 40 responses in a Bloomberg News survey this month.

Government figures due Nov. 1 may show a gauge of manufacturing growth in China matched the fastest pace in 1 1/2 years, according to the median estimate of economists surveyed by Bloomberg.

“We’ve seen concerns about Chinese liquidity tightening start to weigh a little bit,” John Horner, a Sydney-based currency strategist at Deutsche Bank AG, said in a Bloomberg Television interview today. “Those concerns are overdone,” he said, “We think we’re going to reach our year-end target of 98 cents, and don’t rule out a move above parity at some stage in coming weeks.”

Horner predicts the Aussie will climb toward 98 cents on a combination of better-than-expected Chinese growth, Fed stimulus and the RBA’s “on hold” policy stance.

Stevens Speech

Reserve Bank of Australia Governor Glenn Stevens is scheduled to speak tomorrow. He and his board will next meet on Nov. 5, where there’s a 94 percent chance they will keep the benchmark rate at a record-low 2.5 percent, according to interest-rate swaps data compiled by Bloomberg.

New Zealand’s financial markets are closed today for a holiday. The nation’s currency rose 0.3 percent to 83.04 U.S. cents and gained 0.5 percent to 81.09 yen.

Reserve Bank of New Zealand Governor Wheeler will probably keep the key interest rate at 2.5 percent on Oct. 31, according to all 15 analyst forecasts compiled by Bloomberg. Traders see an 83 percent chance policy makers will raise the cash rate to 2.75 percent or higher by June, swaps data compiled by Bloomberg show.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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

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