Australia’s dollar gained against most of its major peers amid speculation the Reserve Bank may not cut interest rates further after Governor Glenn Stevens said there are signs that loose policy is supporting spending.
The Aussie snapped a two-day decline versus the U.S. dollar as the Federal Reserve weighs whether to reduce the pace of its bond-buying program, which has buoyed asset prices around the world. Three-year Australian government bond yields touched the lowest since Oct. 1. New Zealand’s dollar dropped against all but one of its 16 major counterparts.
“Stevens is basically saying interest rates are not prohibitive for growth, so I think the impact of further monetary policy is limited,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “The currency has moved a lot in the last week, and the impetus for it to go lower isn’t there yet.”
The Australian dollar traded at 89.03 U.S. cents as of 5 p.m. in Sydney after losing 0.7 percent in the prior two sessions. It reached 88.82 yesterday, the lowest since Aug. 5.
Australia’s three-year yield fell to as low as 2.87 percent before trading two basis points lower at 2.9 percent. The 10-year (GACGB10) yield was little changed at 4.23 percent. A basis point is 0.01 percentage point.
The RBA has cut the benchmark lending rate by 2 1/4 percentage points since October 2011 to support a rebalancing of the economy as a resource investment boom ends.
“Because inflation has been consistent with the target, the board has been quite comfortable in easing policy by a significant amount,” Stevens said in remarks to a parliamentary committee in Canberra. “The board has maintained an open mind about whether we may need to lower interest rates further. At this point, however, there are few serious claims that the cost of borrowing per se is holding back growth.”
The Aussie dropped for an eighth week last week after Stevens marked out 85 U.S. cents as a level he’d prefer for the currency in an interview with the Australian Financial Review.
“My judgment would be that an exchange rate over a dollar or even in the 90s is unlikely to be a sustainable equilibrium for us over time,” Stevens said today.
The Australian dollar has fallen 1.5 percent in the past week and 5.5 percent in the past month, the most over both periods among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.
“The markets today were hoping for a reiteration of the 85, but they didn’t get it,” said TD’s Beacher. “He’s not going to deliver.”
Bearish bets on the Aussie reached a three-month high on Dec. 10. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain -- so-called net shorts -- rose to 45,850, the most since the week ended Sept. 10, figures from the Washington-based Commodity Futures Trading Commission show.
“The risk of being short the Aussie dollar is growing, so you might see the Aussie dollar squeeze higher in the short term,” said Besa Deda, chief economist at St. George Bank in Sydney. “Everyone is positioned for a downward move.”
In the U.S., the Fed will probably begin reducing $85 billion in monthly bond buying at its two-day meeting that ends today, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg, while 26 percent forecast January and 40 percent said March.
New Zealand’s currency lost 0.4 percent to NZ$1.0797 per Aussie today after earlier touching NZ$1.0749, the strongest since October 2008. It dropped 0.3 percent to 82.50 U.S. cents.
“Aussie-kiwi has been drifting up a bit all day today, so that’s applying some pressure on the the New Zealand dollar,” said Sam Tuck, a senior foreign-exchange manager at ANZ Bank New Zealand Ltd. in Auckland. “It would take something truly exceptional for the data to push kiwi higher at the moment. All the good economic news seems to be priced in.”
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