Expectations for price swings in the Australian dollar are near the lowest in almost 13 years relative to major currencies, as central bank purchases of the so-called Aussie damp its sensitivity to political turmoil.
Implied three-month volatility on the Australian dollar, a measure used to price options, fell to 7.20 percent as of 4:21 p.m. in Sydney, the lowest level this week, data compiled by Bloomberg show. The JPMorgan Group of Seven Volatility Index climbed to 9.52 percent, a three-week high. Aussie volatility was 2.43 percentage points less than the JPMorgan gauge on March 19, the widest discount since March 31, 2000.
Central banks buying Australian dollar debt have helped drive the currency’s record eight-month stretch above parity with the U.S. dollar. The Aussie has climbed 0.2 percent this week to $1.0427 and reached $1.0459 yesterday, the strongest since January. Prime Minister Julia Gillard held on as leader of Australia’s minority government, winning the second challenge in a year, while an impasse on Cyprus curbed global risk appetite.
“The Aussie has been attracting really good demand on dips from real money accounts and reserve managers, attracted by the highest yields among a shrinking pool of AAA assets worldwide,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “There’s not enough of a policy difference between the two sides to see the Australian dollar react to the political shenanigans.”
Gillard, 51, called a leadership contest yesterday after former leader Simon Crean urged a rematch between her and Kevin Rudd, whom she ousted in 2010 and beat again in a February 2012 party vote. Gillard fired Crean yesterday, two other cabinet members quit, another minister resigned, and Rudd ruled out today seeking the Labor leadership in the future.
Central banks managing as much as $7 trillion, including those in Germany, France and China, may be holding Australian dollars, according to data compiled by Bloomberg and documents released by the nation’s Reserve Bank.
Australian 10-year government bond yields fell seven basis points this week to 3.56 percent today. That offers 166 basis points more than similar-dated Treasuries and 194 basis points above the average for the nine other AAA sovereign markets.
Declines in the Aussie at the beginning of this week amid renewed European turmoil may have been limited after speculators trimmed bets on the currency’s gains over the past two months, Trinh said.
The Australian dollar declined 0.4 percent over March 18 and 19 as outrage in Cyprus over plans for a levy on deposits to raise 5.8 billion euros ($7.5 billion) needed to qualify for a bailout revived concern Europe’s fiscal crisis may spiral out of control.
“The latest data shows that a lot of the staler longs have been unwound, so there was much less impetus for a sudden move down in a risk-off environment,” Trinh said.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 23,266 on March 12, down from a record-high 103,376 on Dec. 14.