Australia’s dollar touched its highest level in more than four months after the Reserve Bank kept interest rates unchanged and said current policy settings are “appropriate.”
The so-called Aussie rose against most major peers after RBA Governor Glenn Stevens and his board said in a statement from Sydney the nation’s growth is close to trend. New Zealand’s currency maintained a three-day gain as Asian stocks extended a global rally, supporting demand for riskier assets.
“I think the RBA hasn’t really set out a case for lowering interest rates, so I suspect that’s probably maybe a surprise to the markets,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. The overall statement “seemed to be quite bullish for the Aussie dollar.”
Australia’s dollar touched $1.0603, the strongest level since March 20, before trading little changed at $1.0570 as of 4:09 p.m. in Sydney. It traded at 82.73 yen from 82.70 yesterday.
New Zealand’s dollar, nicknamed the kiwi, was also little changed at 81.97 U.S. cents, after rising 1.5 percent over the previous three trading sessions. It bought 64.17 yen from 64.16. The MSCI Asia Pacific Index of shares rose 0.6 percent, after climbing 1.8 percent yesterday.
The RBA’s decision to keep the overnight cash-rate target at 3.5 percent, the highest among major developed nations, was predicted by 26 of 27 economists surveyed by Bloomberg News. Central bankers lowered the benchmark rate by 1.25 percentage points from November to June.
The Aussie dollar, the world’s fifth-most traded currency, rose 8.5 percent versus the greenback since the RBA’s last rate cut on June 5, the biggest advance among major currencies.
“While it is too soon to see the full impact of those changes, dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years,” Stevens said today. “The exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook.”
Demand for the South Pacific nations’ currencies was limited as technical indicators signaled their recent gains may have been too rapid.
The 14-day relative strength index for the Australian dollar versus the greenback was at 67, approaching the 70 level that some traders see as an indication that an asset may reverse direction. The kiwi’s RSI against the U.S. currency was also at 67.
“Looking at where the currencies are trading, they have come a long way from lows, expecting a lot of positives,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Sydney. “Perhaps the market will be a little bit reluctant to keep buying at these levels.”