Australia’s dollar rebounded from the lowest level in almost three years as a technical indicator signaled recent selling was overdone.
The Aussie snapped a three-day slide after tumbling 9.2 percent since the end of March, set for the biggest quarterly decline since the period ended September 2011. The currency advanced after a private report showed that Australia’s consumer confidence recovered in June after slumping the most in 17 months. New Zealand’s kiwi dollar climbed.
There are “probably quite a few people who’ve got short the Australian dollar near the lows yesterday, and they’re now suffering a painful squeeze,” said Ray Attrill, the global co-head of foreign-exchange strategy in Sydney at National Australia Bank Ltd. “At the moment, there’s the potential for a squeeze up to 95 or 96” U.S. cents, he said. A short position is a bet that an asset’s price will fall.
The Australian currency gained 0.4 percent to 94.65 U.S. cents as of 5:05 p.m. in Sydney from yesterday, when it touched 93.26, the lowest since Sept. 14, 2010. It earlier climbed as much as 0.8 percent. The New Zealand dollar rose 0.4 percent to 79.02 U.S. cents after earlier rallying as much as 0.6 percent.
The Australian dollar’s relative strength index versus the greenback slid to 30.7 yesterday, near the 30 level that some traders see as a sign that an asset’s price has fallen too rapidly and is poised to reverse course. The New Zealand dollar’s RSI against its U.S. counterpart was 33.7 yesterday.
One-month implied volatility for the Aussie was 14.07 percent, based on currency options, after reaching 14.47 percent yesterday, the highest since June 5, 2012.
The yield on Australia’s 10-year government bond rose five basis points to 3.46 percent, after earlier touching 3.50 percent, the highest since May 29.
Citigroup Inc. strategists including New York-based Chief Technical Analyst Tom Fitzpatrick recommended buying the Australian dollar with a target of 98 U.S. cents.
“In an environment with so much market volatility and position squeezing taking place, investors may be forced to take profit on their winners to offset losers,” they wrote in an e-mailed note. “There are not many winners at the moment, but short AUDUSD has been a big one.”
Australia’s currency tumbled 6.5 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes. The New Zealand dollar was the second-worst performer with a 5.6 percent slide.
Futures traders increased bets to a record that the Aussie will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission from last week show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the Aussie compared with those on a gain -- so-called net shorts -- was 58,550 on June 4, the most bearish in data going back to January 1993.
Trading in over-the-counter options on the Aussie against the U.S. dollar jumped to $1.3 billion, the most-traded pair in data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the exchange rate was the largest share of trades at 28 percent. Aussie contracts surged to $5.4 billion yesterday.
The Australian currency was supported after Westpac Banking Corp. and Melbourne Institute said today that their index for consumer sentiment in Australia rose 4.7 percent in June, rebounding from a 7 percent slump last month.
Reserve Bank of Australia Governor Glenn Stevens and his board reduced the overnight cash-rate target to a record 2.75 percent in May. Traders are pricing in a further 33 basis points of cuts within 12 months, according to a Credit Suisse AG index based on swap contracts. They see 36 basis points of rate increases in New Zealand.
The Reserve Bank of New Zealand decides monetary policy tomorrow. All 15 economists surveyed by Bloomberg expect the central bank to leave the official cash rate at a record low 2.5 percent, extending a two-year pause.