The Australian dollar rose against its 16 most-traded peers after policy makers said in minutes of this month’s meeting that the inflation outlook is being affected by recent currency declines.
The Aussie and New Zealand dollar climbed for a second day as investors pared bets on gains in the U.S. currency before Federal Reserve Chairman Ben S. Bernanke testifies to Congress this week. The kiwi’s advance was limited after the statistics bureau said consumer price increases in the second quarter slowed more than economists had estimated.
“There were some marginal shifts in the RBA’s language acknowledging the potential impact of the the currency’s decline on its inflation outlook,” said Robert Rennie, the chief foreign-exchange strategist at Westpac Banking Corp. in Sydney. “There’s an argument to suggest we’ve gotten far too bearish on the Aussie. If you’re sitting short Aussie off the lows you’re probably feeling a bit nervous and that’s really why we’re seeing a bounce.” A short position is a bet a currency will decline in value.
The Australian currency rose 0.9 percent to 91.82 U.S. cents as of 4:56 p.m. in Sydney from yesterday after falling as low as 89.99 cents July 12, the least since September 2010. It gained 0.5 percent to 91.34 yen. New Zealand’s dollar gained 0.3 percent to 78.29 U.S. cents and advanced 0.3 percent to 78.22 yen.
“The inflation outlook, although slightly higher because of the exchange rate depreciation, could still provide some scope for further easing, should that be required to support demand,” the RBA said in the minutes released today. In a record of its June meeting, it had said the inflation outlook “might provide some scope” for more rate reductions.
Traders are pricing in a 54 percent chance the RBA will lower borrowing costs by a quarter percentage point to a fresh record 2.5 percent next month, according to interest-rate swaps data compiled by Bloomberg. That’s down from a 65 percent chance yesterday.
The Aussie dollar has dropped 9.1 percent over the past three months, the worst performance among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The kiwi has fallen 4.7 percent.
“People were probably positioned a little short going into the minutes expecting a bit more dovishness,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia. The minutes showed “even though the fall in the currency is likely to see inflation pick up slightly it’s still within the range where they could provide stimulus.”
In the U.S., the Fed’s chairman delivers his semi-annual monetary-policy testimony on July 17-18. Bernanke said last month the central bank may begin to slow its $85 billion in monthly bond purchases this year and end them in 2014 if economic growth meets policy makers’ goals. He said on July 10 that the U.S. needs “highly accommodative monetary policy for the foreseeable future.”
New Zealand’s consumer prices rose 0.2 percent in the second quarter from the previous three months, the nation’s statistics bureau said today. That’s less than the 0.3 percent median estimate in a Bloomberg News survey of economists. Prices gained 0.7 percent from a year earlier, the slowest since 1999 and less than the 0.8 percent estimate.