Australia’s interest-rate cuts will prove more successful than New Zealand’s intervention in foreign-exchange markets at curbing gains that made their currencies the world’s best performers since 2008.
That’s the view of AllianceBernstein Holding LP, hedge funds and other large speculators. Bullish bets on the so-called Aussie fell by 69 percent from this year’s high in January, while similar wagers on New Zealand’s “kiwi” more than doubled since March, Commodity Futures Trading Commission data show.
Australia and New Zealand’s central banks are joining policy makers from Zurich to Tel Aviv, Stockholm and Seoul in seeking to stem the appreciation of their currencies. Australia’s dollar has lost favor this month on speculation Reserve Bank of Australia Governor Glenn Stevens, who lowered rates this week to a record 2.75 percent, will continue to reduce borrowing costs. Reserve Bank of New Zealand Governor Graeme Wheeler is holding rates steady while selling the local dollar.
“Every central bank is moving to cut rates but New Zealand,” said Genzo Kimura, a Tokyo-based investor at Sumitomo Mitsui Trust Asset Management Co., which oversees the equivalent of $42.4 billion. “I’m thinking about buying the New Zealand dollar. The governor said he doesn’t like the New Zealand dollar being expensive, but he didn’t mention that he will cut the rate.”
The Australian and New Zealand currencies pared this week’s declines after separate reports today showed jobs growth surged in the two nations.
New Zealand’s dollar climbed 0.5 percent to 84.42 U.S. cents as of 12:46 p.m. in New York after government data showed the nation’s unemployment rate dropped to 6.2 percent in the first quarter from 6.8 percent in the prior period. The Aussie added 0.2 percent to $1.0186 after the statistics bureau reported the larger nation’s employers hired 50,100 workers in April, more than four times the amount estimated by economists.
The kiwi currency appreciated as much as 3.8 percent in seven weeks after Wheeler threatened to intervene on Feb. 20. Wheeler said yesterday the central bank sold the local dollar and can do so again. The RBNZ has held rates at a record low since March 2011, even as house prices climb at the fastest pace in five years.
The central bank publishes monthly figures for its net currency sales that may or may not involve direct intervention, which show it sold NZ$31 million ($26 million) in February and March, and NZ$199 million in December. Its intervention capacity was NZ$8.7 billion as of March 31, the data show.
The Bank of Japan is spending about 10 times that amount every month to buy bonds, a policy Governor Haruhiko Kuroda has said can result in a weaker yen.
Finance Minister Bill English said in February his nation wouldn’t join the so-called currency wars because it’s armed with a “peashooter.”
The New Zealand dollar “probably has less immediate pressure on it relative to the Australian dollar,” said Brad Gibson, a money manager in Melbourne with AllianceBernstein, which oversees $443 billion. Australia’s policy makers are thinking how to boost growth as mining slows, “whereas in New Zealand, the central bank is worrying about the housing market picking up. And both are worried about their currencies.”
Gibson has bearish positions on the Aussie, expecting it to slide to 97 U.S. cents over six months, and doesn’t have any active positions in New Zealand’s currency, he said.
The Australian and New Zealand dollars have declined more than 1 percent this week, the most among the Group of 10 advanced-nation currencies. The Aussie is down more than 3 percent from this year’s high of $1.0599 on Jan. 10. New Zealand’s currency reached as high as 84.82 U.S. cents today, rebounding from yesterday’s 0.7 percent slide to 84.01. It touched a high for the year of 86.76 cents on April 11. The kiwi, which was allowed to freely trade in 1985, reached a post-float record of 88.43 in August 2011.
The U.S. Federal Reserve, Bank of Japan, Bank of England and European Central Bank are cutting rates to record lows and, in some cases, flooding the global financial system with trillions of dollars of cash by purchasing bonds in an effort to boost growth.
The policies are leading investors to pour money into economies such as Australia and New Zealand with higher yielding assets, pushing up their currencies. Benchmark rates in those nations compare with a range of zero to 0.5 percent in the U.S., Japan, U.K. and euro zone.
The New Zealand and Australian dollars have risen by about 45 percent versus the U.S. currency since 2008 and more than 50 percent against the euro and yen.
“It’s a currency war,” said Akira Takei, who helps oversee the equivalent of $32 billion as head of the international fixed-income department in Tokyo at Mizuho Asset Management Co.
The flood of central-bank money will probably support riskier assets including the Australian dollar, said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s top foreign-exchange trading firm.
“Given that we haven’t changed our terminal forecast for the RBA at 2.5 percent by year-end and that’s fully priced in, we see good support for the Aussie down at the low for the year at $1.0120,” he said.
The kiwi will probably trade at 84 U.S. cents by year-end, according to the median forecast of analysts compiled by Bloomberg, up from an estimate of 82 cents predicted at the start of the year. The outlook for the Aussie has fallen to $1.02 from $1.04.
New Zealand’s dollar has appreciated 4 percent in the past six months as investors focus on the central bank’s inability to lower borrowing costs amid accelerating gains in house values. Prices rose 6.5 percent in March from a year earlier, the fastest annual pace since 2008, according to Quotable Value New Zealand, a government-owned property researcher.
“Everybody knows, including the finance minister, that they don’t really have the firepower to have an impact on the kiwi’s value,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The next move in rates is up in New Zealand.”
Some central banks have had success intervening. The Swiss National Bank has sold the franc to keep the currency from appreciating beyond 1.20 per euro. The shekel dropped on May 6 by as much as 0.8 percent, the most in almost three months, as the Bank of Israel bought U.S. dollars for the third time in a week.
Sweden’s Finance Minister Anders Borg warned May 7 the krona’s strength is becoming a concern for the nation’s export-oriented economy and called on the central bank to take the krona’s appreciation into consideration.
South Korea’s central bank unexpectedly cut its benchmark rate to 2.5 percent today, after the government reiterated yesterday it is monitoring the won.
Australia’s dollar has dropped 2.8 percent over the past month, according to Bloomberg Correlation Weighted Indexes, amid speculation the central bank will cut rates further as the manufacturing, construction and services industries shrink at a time when miners are forecast to reduce investments. New Zealand’s dollar declined 0.6 percent, the gauges show.
There’s a 76 percent chance Australia’s benchmark will be 2.25 percent by year-end, according to Bloomberg calculations based on interbank cash-rate futures.
In New Zealand, traders see an 84 percent chance Wheeler will keep rates unchanged this year, according to data on overnight indexed swaps compiled by Bloomberg. There’s a 7 percent chance he will cut to 2.25 percent and a 9 percent probability of an increase to 2.75 percent, the data show.
The cooling Australian economy and a record stretch for the Aussie dollar above $1 is helping to cheapen imported goods and damp inflation, with the slowest growth in core consumer prices in 14 years last quarter.
“There are probably still more downside surprises to Australian economic activity to come,” said AllianceBernstein’s Gibson. Lower interest rates “would reduce the attractiveness of the Australian dollar, and the nation’s high exposure to a supply-led softening in commodity prices is also likely to weigh on the currency,” he said.