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Aussie Climbs After RBA Says Non-Mining Demand May Rise

Dec. 4 (Bloomberg) -- Australia’s dollar climbed against most major peers as investors looked past today’s predicted reduction in interest rates by the Reserve Bank, which said that demand outside the mining industry may rise.

Government bond yields gained even after the central bank cut its key rate to a half century low of 3 percent, marking the sixth reduction in the past 14 months. Demand for the so-called Aussie was supported before data tomorrow forecast to show Australia’s economy expanded at a 0.6 percent rate in the third quarter. New Zealand’s dollar rose for a second day.

“People are itching to call the RBA done for now, and you can probably pull parts of today’s statement that would strengthen that argument,” said Michael Turner, a fixed-income strategist in Sydney at Royal Bank of Canada. “The Aussie, on a rate differential argument, should be well-supported so that’s helped it a little bit as well.”

The Australian dollar rose 0.2 percent to $1.0438 as of 5:05 p.m. in Sydney after losing 0.5 percent over the previous three sessions. New Zealand’s currency added 0.2 percent to 82.26 U.S. cents.

Australia’s government bonds fell, increasing the benchmark 10-year yield four basis points to 3.18 percent. That’s almost twice as high as rates on similar-maturity U.S. Treasuries.

The Reserve Bank of Australia reduced its overnight cash-rate target from 3.25 percent, a move predicted by 20 of 28 economists surveyed by Bloomberg News. The 3 percent level matches the level reached from April-October 2009 that is the lowest since 1960.

‘Prospective Improvement’

“There are indications of a prospective improvement in dwelling investment,” RBA Governor Glenn Stevens said in a statement. “There will be more scope for some other areas of demand to strengthen” as the peak in resource investment approaches, the central bank said.

Recent data suggest that the U.S. economy is recording moderate growth and that expansion in China has stabilized, according to the statement.

Official Australian figures tomorrow will probably show that gross domestic product expanded 0.6 percent in the three months ended September from the second quarter when it grew at the same pace, according to the median estimate of economists in a Bloomberg survey.

Demand for the Aussie was limited after government data showed building approvals fell 7.6 percent in October from the prior month. A separate official report said the country posted a A$14.9 billion ($15.5 billion) deficit for the third quarter in its current account, the broadest measure of trade, compared with the $14.6 billion shortfall estimated by economists.

“A lot of expectations for rate cuts had already been priced in,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth Bank of Australia. “Our view is that they have the door open to do more.”

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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