April 30 (Bloomberg) -- The Australian dollar rose to the highest in almost two weeks against its U.S. counterpart before the Federal Reserve opens a two-day meeting amid speculation it will maintain bond purchases for the foreseeable future.
The so-called Aussie rose against most of its major peers as Asian stocks gained and data showed private sector credit increased in March. Demand for New Zealand’s dollar was limited after the nation’s building approvals unexpectedly declined, easing pressure on the Reserve Bank to tighten monetary policy.
“There could be more reserve diversification flowing into currencies like the Australian dollar,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “The general consensus is that the Fed is going to remain fairly dovish. The question is not whether or not quantitative easing is going to be maintained, but if it’s going to be stepped up, and that’s played a part in the U.S. dollar’s recent selloff.”
The Australian dollar touched $1.0372, the highest level since April 17, before trading 0.1 percent higher than yesterday at $1.0358 as of 5:08 p.m. in Sydney, trimming its monthly slide to 0.6 percent. The currency rose 0.2 percent to NZ$1.2105. New Zealand’s dollar slid 0.1 percent to 85.57 U.S. cents.
Australian government bonds rose, with the yield on 10-year debt falling one basis point, or 0.01 percentage point, to 3.09 percent, after touching 3.077 percent, matching the lowest since Nov. 19. The three-year rate dropped as low as 2.57 percent, a level unseen since Dec. 3.
The MSCI Asia Pacific Index of stocks climbed 0.8 percent, following a 0.7 percent gain in the MSCI World Index yesterday.
The Federal Open Market Committee will release a statement after the meeting ends tomorrow. The Fed is buying $85 billion of bonds each month to put downward pressure on borrowing costs. While Chairman Ben S. Bernanke said after the previous meeting on March 20 that further labor-market gains were needed to consider reducing monetary easing, minutes showed officials discussed slowing the pace of buying.
“We’ll probably see the Fed back off from the tapering talk that we saw from the last set of minutes,” said Mike Jones, a foreign-exchange strategist at Bank of New Zealand in Wellington. “That notion has been priced into markets over the past week or so, and that’s why we’ve seen the U.S. dollar struggle a little bit.”
New Zealand’s dollar has strengthened 6.2 percent this year, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar gained 2.4 percent in the same period, while the Aussie rose 2 percent.
In Australia, private sector credit increased 0.2 percent in March from a month earlier, the Reserve Bank of Australia said in a report today. That compared with the median economists’ estimate of 0.3 percent in a Bloomberg News survey.
New Zealand building approvals tumbled 9.1 percent in March from the previous month, retreating from a five-year high. The median forecast of economists surveyed by Bloomberg was a 2 percent gain.
“The approvals data was unambiguously weaker than expected,” said Bank of New Zealand’s Jones. “The Aussie-kiwi cross has already come down a long way, so just in the short term, we are seeing a bit of profit taking.”
For the month, the kiwi has strengthened 2.8 percent against the Aussie, the biggest advance since July 2011, and gained 2.3 percent versus the dollar.
New Zealand’s business confidence fell this month. Australia & New Zealand Banking Group Ltd. said a net 32.3 percent of companies polled expect the economy will improve in the next 12 months, compared with 34.6 percent in March. The net figures subtract pessimists from optimists.
Reserve Bank of New Zealand Governor Graeme Wheeler said on April 24 that the central bank didn’t want to see excessive housing demand compromising financial or price stability, according to an RBNZ statement.
Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia. Swaps show traders expect an 17 basis-point increase in New Zealand interest rates over 12 months, compared with 56 basis points of cuts in Australia, according to Credit Suisse Group AG indexes.
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