March 19 (Bloomberg) -- Australia’s dollar traded 0.3 percent from a five-week high after central bank Deputy Governor Philip Lowe defended a higher exchange rate and savings level, saying they helped stabilize the economy.
The so-called Aussie rose against the yen after minutes of the Reserve Bank of Australia’s March 5 meeting said there are signs the economy is responding to low interest rates. New Zealand’s currency slid against most major peers after Finance Minister Bill English said the currency is overvalued and he expects interest rates to stay lower for longer.
“The deputy governor is sounding the victory bell on inflation in the mining boom,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “We managed to come through the boom without an excessively high level of inflation. It’s hard to see a long-term short position in the Australian dollar bearing any fruit,” he said referring to bets that an asset will decline.
The Australian currency fetched $1.0386 as of 4:50 p.m. in Sydney from $1.0402 yesterday. It touched $1.0415 on March 15, the highest since Feb. 5. The Aussie added 0.3 percent to 99.28 yen. New Zealand’s kiwi weakened 0.2 percent to 82.55 U.S. cents. It gained 0.3 percent to 78.91 yen.
The RBA’s Lowe said a stronger currency and higher savings rate have helped contain inflation and allowed lower interest rates even as the mining industry boomed.
“These factors have helped Australia to digest a huge investment boom without generating substantial imbalances in the economy,” he said today in Sydney.
“The market will certainly interpret the comments in a positive light,” said ANZ’s Salter. “They will encourage the market to continue pricing in a normalization of policy in Australia.” ANZ expects the RBA to hold benchmark borrowing costs unchanged in April.
Interest-rate swaps data compiled by Bloomberg show traders see a 18 percent chance the RBA will cut the benchmark rate at the next meeting on April 2.
“Interest-sensitive parts of the economy continued to show signs of responding to these low rates,” according to minutes of the central bank’s meeting this month when it kept its key rate on hold at 3 percent. “It was appropriate to hold rates steady, and to assess further developments.”
‘Wait and See’
“The message from the minutes today chimes with a speech earlier today by RBA Deputy Governor Lowe,” Alvin Pontoh, an Asia-Pacific strategist at TD Securities Inc. in Singapore, wrote in a note to clients. “We continue to get a sense that the RBA remains in wait-and-see mode.”
Australian bonds retreated as the MSCI Asia Pacific Index of shares advanced 0.5 percent. Three-year bond yield rose seven basis points, or 0.07 percentage point, to 3.02 percent from yesterday, when it dropped 17 basis points. The 10-year rate climbed eight basis points to 3.55 percent.
Australia’s bond market is benefiting from strong international demand for assets in the nation’s currency, RBA Assistant Governor Guy Debelle said today.
The Aussie has gained 2.3 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes. Its New Zealand counterpart has risen 3.2 percent in the same period.
Demand for the kiwi was hurt after Finance Minister English said the currency was overvalued.
“There may be a correction in valuation with the exchange rate when the U.S. economy is clearly picking up, and there are signs of that now,” English said in an interview in Hong Kong. The strength in the currency is “driven to a large extent by quantitative easing.”
English’s words “at the edge add to some of the bearish tone we’ve seen around the New Zealand dollar,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. “I still think the currency is going to be pretty well supported on dips.”
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