Australia’s dollar rose to a three-month high amid speculation Federal Reserve Vice Chairman Janet Yellen will become the next head of the U.S. central bank and maintain stimulus that’s supported risk assets worldwide.
The South Pacific nation’s bonds surged after former Treasury Secretary Lawrence Summers withdrew his name from consideration for the Fed post. The Aussie and New Zealand’s kiwi dollar gained versus most of their major peers after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons, supporting demand for higher-yielding assets.
“I’m a bit more upbeat on the Aussie purely from a dollar point of view,” said Robert Rennie, the chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “What you have to read into the market’s move is that this is a combination of Summers and Syria, but it is a risk-positive story.”
Australia’s currency strengthened 1 percent to 93.34 U.S. cents as of 5 p.m. in Sydney after reaching 93.94, the highest since June 19. It climbed 0.4 percent to 92.20 yen. The kiwi advanced 0.8 percent to 81.99 U.S. cents after touching 82.30, the strongest since May 16. It appreciated 0.2 percent to 80.98 yen.
The yield on Australia’s three-year note dropped six basis points to 2.85 percent, while the rate on the 10-year security sank nine basis points to 4 percent.
Japan’s markets are closed today for a national holiday, while the MSCI Asia Pacific Excluding Japan Index of shares jumped 1.5 percent.
U.S. President Barack Obama said in a statement he accepted the withdrawal of Summers for the Fed job. Obama had also mentioned Yellen as a potential candidate after Ben S. Bernanke’s term as chairman expires on Jan. 31, with policy makers preparing to reduce bond purchases, known as quantitative easing.
Pacific Investment Management Co.’s Co-Chief Investment Officer Bill Gross said the exit of Summers from the Fed leadership race was “huge” for risk-on and yield-curve trades.
MSCI’s ex-Japan stocks gauge gained 12 percent since the Fed announced the third round of quantitative easing on Sept. 13 last year till Bernanke first mentioned the possibility of slowing the purchases on May 22.
The Fed will probably taper its monthly debt buying to $75 billion from the current $85 billion pace at its two-day meeting that starts tomorrow, according to the median estimate of economists surveyed by Bloomberg News.
“The markets have it right -- she would be more pro-growth and would keep rates lower for a longer,” Chris Rupkey, the chief financial economist in New York at the Bank of Tokyo-Mitsubishi UFJ Ltd., said about Yellen in an interview with Bloomberg Television. “That’s not good for the U.S. dollar. It is good for U.S. stocks.”
U.S. Secretary of State John Kerry will meet with French President Francois Hollande and his counterparts from France and the U.K. to build support for a plan to eliminate Syria’s chemical weapons. Kerry negotiated the accord with Russian Foreign Minister Sergei Lavrov.
The Reserve Bank of Australia will tomorrow release minutes of its Sept. 3 meeting when the central bank kept its benchmark interest rate on hold at a record-low 2.5 percent and omitted a reference to scope for further stimulus.
Traders see a 38 percent chance that RBA Governor Glenn Stevens and his policy board will reduce rates by the end of the year, overnight-index swaps data compiled by Bloomberg show. The likelihood was estimated at 62 percent at the end of August.
New Zealand is scheduled to report second-quarter gross domestic product on Sept. 19, which economists forecast grew 0.2 percent from the January-March period. The nation’s Reserve Bank said on Sept. 12 that interest-rate increases will likely be required next year from the all-time low of 2.5 percent as inflation picks up.
Two-year interest-rate swaps fell four basis points to 3.53 percent in New Zealand. The contracts, often used to bet on the direction of future monetary policy, earlier reached 3.57 percent, the highest since Aug. 4, 2011.
Barclays Plc recommends selling the Australian dollar against its New Zealand counterpart.
“While the September statement again excluded an explicit easing bias, we expect a weak easing bias to come through” in the RBA meeting minutes, Barclays’ currency strategists, including Singapore-based Hamish Pepper, wrote in a research note yesterday. Higher-than-estimated growth in New Zealand’s GDP “would likely be NZD-positive, especially against AUD.”
The Aussie climbed 0.1 percent to NZ$1.1385 today, snapping a three-day slide.