Aussie Volatility Near 4-Month High Before RBA as Shares Tumble

The expected fluctuation of the Australian dollar rose toward the highest in more than four months as traders weighed prospects for the Reserve Bank to scrap its easing bias while emerging markets drop.

The Aussie was little changed after posting the biggest weekly gain in four weeks. Swap levels show there’s 97 percent odds the Reserve Bank of Australia will keep rates on hold at 2.5 percent today. The RBA will release its quarterly statement on policy on Feb. 7. New Zealand’s dollar fell to the lowest since September after Finance Minister Bill English said the government is “not comfortable” with the currency’s strength.

“We will be looking for some nuances on a switch from an easing bias to a neutral bias” from the RBA, said Imre Speizer, a market strategist at Westpac Banking Corp. “If they don’t provide that today, it is more likely they will later this week. You may get a small positive reaction upon seeing that change of bias” in the Aussie, he said.

One-month implied volatility for the Aussie versus the greenback rose 24 basis points to 10.72 percent from yesterday, when it touched 10.80 percent, the most since Sept. 30. A basis point is 0.01 percentage point.

The Aussie declined 0.1 percent to 87.44 U.S. cents as of 12:29 p.m. in Sydney. The currency rose 0.1 percent to 88.45 yen from yesterday, when it dropped 1.1 percent. Australia’s dollar added 0.2 percent to NZ$1.0842, after touching NZ$1.0877 yesterday, the highest level since Jan. 3.

The kiwi fell 0.3 percent to 80.65 U.S. cents, after earlier touching the weakest since Sept. 11 at 80.52. The currency bought 81.57 yen from 81.63 yesterday, after reaching 81.47, the lowest since Nov. 12.

RBA Meeting

None of the economists in a Bloomberg News poll expect the RBA to change policy when it sets rates at 2:30 p.m. in Sydney. The Reserve Bank of New Zealand, which refrained from raising borrowing costs last month, next meets on March 13.

“It’s impossible to say how long this weakness from emerging markets will persist or whether it will intensify or not,” Westpac’s Speizer said. “If it does persist, the yen will be the main recipient, while the high beta currencies, like the Aussie and kiwi should suffer.”

The yield on Australian notes maturing April 2024 fell 6 basis points to 3.94 percent, after dropping to as low as 3.93 percent, the least since Oct. 3.

The MSCI Asia Pacific Index of shares fell 2.3 percent, following a 1.7 percent drop in the MSCI World Index yesterday.

To contact the reporter on this story: 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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