Australia’s dollar held its biggest gain in two months against the greenback before Federal Reserve Chairman Ben S. Bernanke speaks in Congress tomorrow.
The so-called Aussie has rebounded from its worst two-week loss in more than a year as traders bet Bernanke may counter speculation U.S. policy makers are closer to reducing bond purchases. The currency fell earlier before the Reserve Bank of Australia released minutes from this month’s meeting when it cut interest rates to a record. New Zealand’s kiwi dollar rose, building on its biggest advance in eight months.
“The way I see Bernanke playing this is that he’s just going to come out and defend his easy policies,” said Chris Weston, the chief market strategist at IG Markets in Melbourne. “People are looking to cover shorts on the Aussie dollar ahead of that, and that’s why we’re seeing the move up.” A short position is a bet that an asset will decrease in value. Weston said he expects Australia’s currency to strengthen toward 98.70 U.S. cents.
The so-called Aussie advanced 0.1 percent to 98.18 U.S. cents as of 5:03 p.m. in Sydney from yesterday, when it rose 0.8 percent, the most since March 14. It earlier fell to 97.52, and tumbled 5.7 percent over the past two weeks, the most since the 10 days ended Sept. 30, 2011.
The New Zealand dollar, known as the kiwi, rose 0.2 percent to 81.89 U.S. cents after jumping 1.3 percent yesterday, the most since Sept. 7.
Bernanke goes before a Joint Economic Committee of Congress in Washington tomorrow to testify on the economic outlook. Minutes of the Fed’s last policy meeting will be released the same day.
The dollar has been boosted by speculation the U.S. central bank is going to signal a paring back of its purchases of $85 billion of Treasury and mortgage bonds a month. Fed Bank of Chicago President Charles Evans added to that speculation yesterday, saying the U.S. economy has improved “quite a lot.”
The Federal Open Market Committee said May 1 it would be prepared to increase or reduce the pace of asset purchases in response to changes in the outlook for inflation and the labor market.
“The Fed has been hopeless at communicating, so the hope is we may get some clarity on what really is policy” from Bernanke’s testimony, Nick Parsons, co-head of foreign-exchange strategy at National Australia Bank Ltd., said in Sydney. “I think the Fed is genuinely ambivalent.”
The RBA said subdued growth and inflation gave it scope to reduce the benchmark interest rate to a record 2.75 percent earlier this month, according to minutes from the meeting. Policy makers said the effects of earlier cuts are still working through the economy.
Traders see the RBA lowering borrowing costs by 28 basis points over 12 months, compared with 32 points of cuts priced in yesterday, a Credit Suisse Group AG index based on swaps showed. They expect 19 basis points of rate increases by the Reserve Bank of New Zealand.
Australia’s benchmark 10-year government bond yield rose 3 basis points to 3.26 percent. The three-year yield increased 4 basis points to 2.58 percent.
The notes also debuted today on the nation’s biggest stock exchange, as the government seeks to attract retail investors. Trading totaled A$319,000 and was dominated by 2015 and 2017 notes.