The Australian dollar rebounded from the lowest since September 2010 on speculation it fell too fast and as investors weighed the odds of an interest-rate cut by the central bank.
The Aussie’s 14-day relative strength index versus the greenback dropped to 31 yesterday, near the 30 level some traders see as a sign an asset’s price may reverse direction. Reserve Bank Deputy Governor Philip Lowe said today that markets misinterpreted Governor Glen Stevens’s comments that policy makers “deliberated for a very long time” before keeping rates unchanged this week.
“The Aussie may be hitting a bottom after an excessive loss,” said Marito Ueda, senior managing director at FX Prime Corp., a currency-margin company in Tokyo.
The Australian dollar rose 0.2 percent to 91.10 U.S. cents at 4:41 p.m. in Sydney from yesterday, when it touched 90.37, the lowest since September 2010. The Aussie was little changed at 90.79 yen. It climbed 0.2 percent to NZ$1.1703 from yesterday, when it touched NZ$1.1653, the weakest since November 2008.
New Zealand’s kiwi dollar was little changed at 77.85 U.S. cents from yesterday. It slipped 0.2 percent to 77.58 yen.
The yield on Australia’s 10-year government bond added five basis points, or 0.05 percentage point, to 3.79 percent.
“If the economy ‘needs’ a lower exchange rate, it will probably get it,” RBA Governor Glenn Stevens said in a speech in Brisbane to the Economic Society of Australia yesterday. The central bank’s board kept the key interest rate unchanged at a record low 2.75 percent at a meeting on July 2.
The Aussie slid yesterday and odds for a cut to the RBA’s key rate increased after Stevens said the board deliberated for a long time before its decision. Lowe said today that the governor’s comments were light-hearted.
Australia & New Zealand Banking Group reverted to a previous forecast after Lowe spoke, saying it doesn’t expect an RBA rate cut until November, according to an e-mail statement today.
Swaps data compiled by Bloomberg show traders see a 44 percent chance the RBA will lower its key rate to 2.5 percent at its next meeting on Aug. 6, compared to a 31 percent likelihood indicated a week ago.
The number of permits granted to build or renovate houses and apartments in Australia declined 1.1 percent in May from the previous month, when they increased a revised 9.5 percent, the statistics bureau said in Sydney today. That exceeded the 1 percent decrease expected by economists in a Bloomberg News survey.
The Aussie will extend declines that have made it the worst-performing major currency over the past three months, according to Credit Suisse Group AG, TD Securities Inc. and Bank of America Merrill Lynch. Credit Suisse said it will drop within 12 months to 75 U.S. cents, a level unseen since May 2009. TD cut its Dec. 31 forecast to 90 while Bank of America sees it at 89.
“Our feeling remains that either the dollar will continue to fall naturally, or the RBA will need to give it another push with a further interest rate cut,” Credit Suisse strategists including Singapore-based Ray Farris wrote in a note to clients yesterday.
The Aussie has dropped about 11 percent since the RBA unexpectedly cut its key rate on May 7. The slump also reflects slowing growth in China and comments by Federal Reserve Chairman Ben S. Bernanke, who said on June 19 that U.S. policy makers may begin slowing bond purchases this year if the economy achieves sustainable growth.
“I’m skeptical the Aussie will fall significantly further unless we see a larger deterioration to the outlook for China,” said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “The RBA has ramped up the talk about the Aussie being high, really talking it down in a way and acknowledging that possibility that the cash rate could fall further.”