July 26 (Bloomberg) -- The Australian dollar headed for a second-straight weekly gain against the greenback amid speculation the Federal Reserve will maintain bond purchases that have supported higher-yielding assets around the world.
The Aussie traded near its weakest in 4 1/2 years against New Zealand’s kiwi dollar as traders boosted bets for the Reserve Bank of Australia to lower borrowing costs when policy makers meet on Aug. 6. The kiwi is set for a five-day advance against all 16 of its major peers after the nation’s central bank said yesterday a removal of monetary stimulus “will likely be needed in the future,” prompting wagers for an increase to the benchmark rate as early as January 2014.
“A lot will depend on how financial conditions evolve in the U.S. and whether the Fed looks to reduce its stimulus,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia, the nation’s largest lender. “We expect it will at some point in 2013, but there is a risk that it delays it by a meeting or two. We don’t think the Aussie will fall too far.”
The Aussie rose 0.1 percent to 92.59 U.S. cents as of 4:46 p.m. in Sydney, headed for a 1 percent weekly advance. New Zealand’s dollar was little changed at 80.77 U.S. cents after climbing 1.9 percent yesterday, its biggest one-day gain since June 2012. Australia’s currency gained 0.2 percent to NZ$1.1463, after reaching NZ$1.1397 yesterday, the weakest since November 2008.
Levels around 91.50 U.S. cents could provide support to the Aussie in coming days, said Dragicevich, referring to an area on a chart where orders to buy may be clustered.
The Federal Open Market Committee is scheduled to meet July 30-31. It won’t announce a decision to reduce its monthly bond purchases at that meeting, according to 54 economists surveyed by Bloomberg News from July 18-22. Half of those polled said Fed Chairman Ben S. Bernanke will trim bond buying to $65 billion in September from the current pace of $85 billion.
There’s a 76 percent chance RBA Governor Glenn Stevens and his board will lower Australia’s benchmark rate by 25 basis points to 2.5 percent at a meeting next month, interest-rate swaps data compiled by Bloomberg show. That’s up from 65 percent odds signaled on July 19.
Traders see a 60 percent probability Reserve Bank of New Zealand Governor Graeme Wheeler will raise borrowing costs from a record-low 2.5 percent to 2.75 percent or higher by its January meeting, according to Bloomberg-compiled data. That compares with 41 percent odds seen a week ago
“Wheeler’s comments regarding the need to remove monetary stimulus are producing a stronger-than-expected contrast with the RBA’s more subdued policy profile,” Adam Myers, the head of foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London, wrote in a research note. “Selling momentum in AUD/NZD should persist into next week.”
Australia’s 10-year government bond yield was unchanged at 3.78 percent, after earlier touching 3.79 percent, the highest since July 10. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates that is sensitive to interest-rate expectations, gained two basis points to 3.36 percent.
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