Australia’s dollar fell after the nation’s Reserve Bank said in minutes of its policy meeting this month there is scope for easing should demand “weaken materially.”
The so-called Aussie and New Zealand’s dollar trimmed declines after euro-area officials reached agreement on providing Greece with a second rescue package and the Greek finance minister said a formal offer for a debt swap will be made by the end of this week. Demand for the South Pacific currencies was limited after technical indicators suggested recent gains were excessive.
“Effectively, the RBA has maintained an easing bias,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, who expects 50 basis points of interest-rate cuts in Australia this year. “The Aussie is really struggling to strengthen on the back of that.”
Australia’s currency fell 0.7 percent to $1.0685 as of 1:56 p.m. in New York from yesterday, when it rose 0.5 percent. It lost as much as 0.9 percent, the most since Feb. 14. The Aussie declined 0.5 percent to 85.19 yen from yesterday, when it touched 86.36, the highest since July 11.
New Zealand’s dollar lost 0.5 percent to 83.58 U.S. cents from yesterday, when it reached 84.29, the highest since Sept. 5. The so-called kiwi bought 66.63 yen from 66.87.
The RBA said that “while the financial situation in Europe remained fragile, the likelihood of an extremely bad outcome seemed to have diminished somewhat,” according to minutes released today of its Feb. 7 meeting. The central bank unexpectedly kept its benchmark rate unchanged at 4.25 percent at the gathering after two quarter-percentage-point reductions late last year.
Greek Debt Talks
The deal hammered out by euro-area finance ministers meeting in Brussels includes a 53.5 percent writedown for investors in Greek bonds, Luxembourg’s Jean-Claude Juncker, who led the gathering, told reporters early this morning.
European Central Bank President Mario Draghi called the Greek bailout deal “a very good agreement.” Italian Prime Minister Mario Monti said private bondholders agreed to take a bigger writeoff on their Greek debt after “intense” negotiations.
“The detail of the package plus the increase in the haircut have all come at the time when the market has found itself short risk,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc. “I expect the Aussie and the kiwi to really go a lot higher.”
The kiwi has risen 10.4 percent in the past three months, the best performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The Aussie has gained 6.8 percent for the next best performance in the period.
The New Zealand currency’s 14-day relative strength index against the yen was at 79 yesterday, above the 70 level that some traders see as a sign that an asset may be about to reverse direction. The index for the Australian dollar against the yen was at 76 yesterday.
New Zealand company executives lowered their expectations for the nation’s inflation rate, a survey conducted for the central bank showed. Inflation will average 2.5 percent in two years’ time, according to the 75 business managers surveyed.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell four basis points to 3.03 percent.
Australia sold A$900 million ($965 million) of 1.25 percent Treasury indexed bonds due 2022, excluding a A$10 million allotment that will be taken up by the central bank. The bonds were priced at a real yield to maturity of 1.37 percent, the Australian Office of Financial Management said in a statement today.