Aussie, Bond Yields Rise Before Trade, Retail Data This Week

Australia’s dollar advanced against most of its major peers before reports this week forecast to show the nation’s trade deficit narrowed and retail sales advanced for a fifth month.

Australian 10-year government bond yields closed at the highest in almost a month as traders reduced bets the Reserve Bank of Australia would cut its benchmark lending rate from a record-low 2.5 percent. Australia’s currency pared gains against the dollar and fell against the yen after a private report showed Chinese services activity expanded at a slower pace and as Asian equities retreated.

“The RBA will look at retail spending, and retail sales have held up quite well of late,” said Chris Weston, chief market strategist at IG Ltd. in Melbourne. “That’s certainly a source of inspiration for Aussie-dollar bulls.”

The Australian dollar bought 89.46 U.S. cents as of 5:03 p.m. in Sydney from 89.45 on Jan. 3, and gained 0.2 percent to NZ$1.0838. It fell 0.5 percent to 93.29 yen. New Zealand’s currency slipped 0.2 percent to 82.56 U.S. cents and sank 0.7 percent to 86.11 yen.

Australia’s 10-year bond yields climbed three basis points, or 0.03 percentage point, to 4.38 percent, the highest close since Dec. 10.

The MSCI Asia Pacific Index of stocks fell 0.8 percent.

Narrower Deficit

Australia’s trade deficit probably narrowed to A$300 million ($268.3 million) in November from A$529 million the previous month, according to the median estimate of economists surveyed by Bloomberg News before the Australian Bureau of Statistics data tomorrow. Retail sales advanced 0.4 percent in November, according to a separate Bloomberg poll before the report’s release on Jan. 9.

Traders see 6 percent odds the Reserve Bank of Australia will reduce its benchmark lending rate at its next meeting in February, compared with an 18 percent chance a month earlier.

The Aussie gained for the first time in 11 weeks over the five days to Jan. 3, snapping the longest losing streak since 1982. It fell 14 percent against the greenback in 2013, the most among its Group of 10 peers after the yen.

“After 2013’s poor performance, early 2014 should see an improvement,” Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland, wrote in an e-mailed note to clients. The Australian dollar may rally above 90 U.S. cents in coming days, and toward 92 cents in the weeks ahead, according to the note.

China Growth

Australia’s currency pared gains after a report showed the expansion of China’s services industry slowed last month. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics fell to 50.9 from 52.5 in November, with numbers above 50 signaling expansion. China is Australia’s largest trading partner.

“Aussie is seen as a proxy trade in the G-10 space to China growth,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “Sentiment was already sluggish with global equities looking a little bit soft.”

In New Zealand, traders see 51 percent odds the central bank will raise its benchmark rate from a record-low 2.5 percent at its next meeting on Jan. 30, according to swaps.

ABN Amro Bank NV doubled its forecast for interest-rate increases this year, and pared its expectation for kiwi dollar declines. The Reserve Bank of New Zealand will raise borrowing costs by a percentage point in 2014 as growth tops estimates, ABN Amro said in a note to clients today.

The New Zealand currency will fall to 78 U.S. cents at the end of this year, and 76 cents in 2015, ABN Amro’s Singapore-based senior currency strategist Roy Teo wrote. Previously, the bank forecast 76 cents for this year, and 72 for 2015.

To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

To contact the editor responsible for this story: Pavel Alpeyev at palpeyev@bloomberg.net

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