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Aussie Rises, Pares Quarterly Loss, After China Reassures Market

June 26 (Bloomberg) -- Australia’s dollar rose for a fourth day, paring its steepest quarterly drop since 2008, after reassurances from China that it will ease a credit squeeze spurred demand for higher-yielding assets.

The Aussie maintained a three-day advance versus the yen after Australian Prime Minister Julia Gillard called a ballot for the leadership of the ruling Labor party today. Gains in the currency were limited on speculation the Reserve Bank of Australia is prepared to cut interest rates while the Federal Reserve may trim bond purchases this year. New Zealand Finance Minister Bill English said the kiwi is still “a bit overvalued” as it headed for a 7.7 percent drop this quarter, the sharpest slide since the three months ended Sept. 30, 2011.

“The Aussie is finding a little bit of support and fears easing in China are a big factor behind that,” said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “Over the medium term, the Aussie is more than likely to head lower due to the easing policy stance that the RBA has.”

The Australian dollar rose 0.5 percent to 93.08 U.S. cents as of 5:39 p.m. in Sydney from yesterday, after touching 91.48 on June 24, the lowest since September 2010. It has lost 2.8 percent this month and declined 10.7 percent since the end of March. The Aussie was little changed at 90.58 yen, after climbing 1.2 percent in the previous three sessions.

One-month implied volatility for the Aussie versus the greenback slid 67 basis points to 13.99 percent, after surging to 15.5 percent on June 24, the highest since December 2011.

New Zealand’s dollar was at 77.66 U.S. cents from 77.43. It weakened 0.1 percent to 75.66 yen. For the month, the kiwi slid 2.3 percent against the greenback and 5.2 percent versus the Japanese currency.

Australian Bonds

Gillard called a ballot for the leadership of the ruling Labor party for 7 p.m. local time, setting up a third showdown with Kevin Rudd less than three months from an election that polls show she will lose in a landslide.

The prime minister called on Labor’s 102 lawmakers to endorse her and said the loser of the party-room vote should quit parliament at the Sept. 14 election to allow the winner to helm a united party. Rudd said he would contest the vote.

The yield on Australia’s 10-year government bond rose four basis points to 3.84 percent. The benchmark rate reached 4.04 percent on June 24, the highest since April 2012. The three-year rate added two basis points to 2.89 percent.

Interest-rate swaps data compiled by Bloomberg show traders see a 30 percent chance the central bank will lower its benchmark to 2.5 percent at the next meeting on July 2.

Fed Policy

Fed Chairman Ben S. Bernanke signaled on June 19 the U.S. central bank may “moderate” its $85 billion in monthly bond purchases, known as quantitative easing, later this year and end it mid-2014 if economic improvement continues.

U.S. gross domestic product rose at a 2.4 percent annualized rate in the first quarter, from 0.4 percent in the previous three months, the Commerce Department will probably confirm today according to the median forecast in a Bloomberg News survey of economists.

The People’s Bank of China said it will use tools to safeguard stability in money markets and tight liquidity is set to ease. China’s central bank has provided liquidity to some financial institutions to stabilize money-market rates and will use short-term liquidity operations and standing lending-facility tools to ensure steady markets, according to a statement posted to its website yesterday.

China is the biggest trading partner for both Australia and New Zealand.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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