The Australian dollar advanced to the highest level in a month versus its U.S. peer on prospects the Federal Reserve’s plan to expand asset purchases will weaken demand for the greenback.
New Zealand’s dollar, known as the kiwi, climbed to a six-month high as global stocks rallied and commodity prices advanced, buoying demand for riskier currencies. The U.S. central bank said yesterday it will increase its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month.
“What the Fed has done is sufficient to keep the U.S. dollar weak and probably trending weaker in the near term,” said Ray Attrill, the Sydney-based global co-head of foreign-exchange strategy at National Australia Bank Ltd. “While that is the case, then obviously you would expect that the Aussie and kiwi dollar will both remain very well supported near or even above these current levels.”
The Australian dollar touched $1.0588, the strongest since Aug. 9, before trading at $1.0580 as of 4:15 p.m. in Sydney, heading for a 1.9 percent weekly advance. It added 0.4 percent today to 82.06 yen.
New Zealand’s dollar climbed 0.4 percent to 83.43 U.S. cents after earlier reaching as high as 83.54, the most since March 2. It rose 0.5 percent to 64.74 yen.
Australian government bonds declined for a third day, with the yield on 10-year notes increasing five basis points, or 0.05 percentage point, to 3.27 percent. It earlier touched 3.3 percent, the most since Aug. 24.
The MSCI Asia Pacific Index of stocks rose 2.5 percent following yesterday’s 1.6 percent gain for the Standard & Poor’s 500 Index of U.S. shares. The Thomson Reuters/Jefferies CRB Index of raw materials gained 0.6 percent yesterday.
In addition to announcing asset purchases, the Federal Open Market Committee said it would probably hold the federal funds rate near zero “at least through mid-2015.” The Fed had previously said the rate was likely to stay low at least through late 2014.
“The message from the Fed is they are going to keep pushing hard in terms of their easing efforts even if and when the economic news improves,” said NAB’s Attrill. “That’s been the particular element of what the Fed has done that has impressed those involved in risk assets.”
While key rates remain near zero in the U.S. and also Japan, central banks in Australia and New Zealand have kept their benchmarks higher, at 3.5 percent and 2.5 percent respectively. The extra yield helps attract investors to assets in the South Pacific nations, although the risk in such trades is that currency market moves will erase profit.
The prospect of sudden changes in the Australian dollar dropped to the least in five years. Three-month implied volatility on the Aussie against the U.S. currency, derived from option premiums, slid to 9.075 percent today, the lowest since August 2007.
The Australian dollar has advanced 0.8 percent this week, the second-best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar is the best-performing currency with a 1.7 percent gain.