Aussie Set for Weekly Gain, Kiwi Retreats After Wheeler Speech

Australia’s dollar fell, paring its first five-day gain in three weeks, while the New Zealand kiwi slid after the central bank governor said the currency’s level is a headwind for growth and unsustainable in the long run.

The Aussie held the biggest increase in more than two years versus its New Zealand counterpart ahead of a Reserve Bank of Australia meeting next week when 95 percent of swaps trader expect policy makers to keep rates on hold at 2.5 percent. The kiwi was poised for its biggest weekly loss in more than a month versus the greenback after Reserve Bank of New Zealand Governor Graeme Wheeler’s speech.

“Interest rates in Australia have bottomed; we don’t expect another cut by the RBA, and the next move will be a hike before the end of the year,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “The Aussie had a big whack already against most major currencies. We expect the low in the Aussie to be not too far from where we are at the moment.”

The Aussie weakened 0.3 percent to 87.70 U.S. cents as of 6:30 p.m. in Sydney from yesterday, when it climbed 0.6 percent. It is up 1 percent this week. It dropped 0.5 percent to 89.88 yen. Australia’s currency was little changed at NZ$1.0762, after strengthening 1.2 percent yesterday, the biggest jump since August 2011.

The yield on Australian notes maturing in April 2024 slid 1 basis point to 4 percent, and reached 3.99 percent, the lowest level since Oct. 30.

Kiwi Dollar

The kiwi lost 0.2 percent to 81.47 U.S. cents from yesterday, when it touched the weakest since Dec. 30 at 81.26. It was headed for a 0.8 percent drop this week, the biggest since the five days to Nov. 29. The currency fell 0.5 percent to 83.49 yen and touched 83.19, the least since Nov. 29.

In Australia, private credit rose 3.9 percent in December from a year earlier, the RBA data showed today. That was more than the 3.7 percent increase expected by economists in a Bloomberg survey.

None of the economists in a separate Bloomberg poll expect the central bank to change policy when it meets next week.

Australia’s dollar fell 0.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes which track 10 developed-nation currencies. The kiwi has gained 0.8 percent in the same period.

Aussie Forecast

Commonwealth Bank of Australia, the nation’s biggest lender, cut its Aussie forecast to 84 U.S. cents by the end of the year from the previous estimate of 89.

“We expect the AUD depreciation path to be slightly more pronounced than previously thought,” Richard Grace, CBA’s Sydney-based head of foreign-exchange and rates strategy, wrote in a note to clients today. “It is conceivable the AUD trades sub-0.80 at some point in 2014, particularly if Australia’s economic transition falters or emerging market fears escalate.”

In New Zealand, exports exceeded imports by NZ$523 million ($428 million) in December, the statistics bureau said today. That was more than the NZ$500 surplus forecast by economists.

The kiwi dollar weakened yesterday after RBNZ Governor Wheeler held the Official Cash Rate at a record-low 2.5 percent while swaps traders had seen about a 50 percent chance of an increase, according to data compiled by Bloomberg. They are now pricing in at least a 25 basis point increase in March.

RBNZ Policy

“There is a need to return interest rates to more normal levels and the bank expects to begin this adjustment soon,” Wheeler said in a speech in Christchurch today. “The exchange rate remains a considerable headwind for the economy, and the bank does not believe its current level is sustainable in the long run.”

“Kiwi weakness against the Aussie dollar may have a bit more to go, but I think there will be strong support against the U.S. dollar around 80 cents,” said Rochford’s Averill. “The RBNZ has been a lot less successful in their jawboning attempts than the RBA has, in sending the kiwi lower. That’s part of the reason why they’re putting off interest rate hikes.”

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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