Australia’s dollar snapped the steepest advance versus its New Zealand counterpart in two weeks after the bigger nation’s central bank reiterated that weakness in the currency would aid the economy.
The nation’s two-year swap rate was near the lowest in 4 1/2 years relative to its New Zealand equivalent on speculation the Reserve Bank of Australia will cut borrowing costs already at a record low. New Zealand’s central bank has signaled it will raise its benchmark interest rate next year. The kiwi was near a four-month high against the greenback as JPMorgan Chase & Co. said chart analysis showed the currency may extend gains.
“A soft exchange rate is what the RBA wants,” said Lee Sue Ann, a treasury economist at United Overseas Bank Ltd. in Singapore. “Given the recent recovery in the Aussie dollar, I think the RBA is very careful not to close the door for rate cuts ahead.”
The Aussie was little changed at NZ$1.14 as of 4:45 p.m. in Sydney after rising 0.3 percent yesterday, the most since Sept. 3 on a closing basis. It weakened 0.1 percent to 93.11 U.S. cents, trimming its gain this quarter to 1.9 percent. The kiwi was little changed at 81.69 U.S. cents.
The yield on Australia’s three-year note added five basis points to 2.90 percent, while the rate on the 10-year security climbed five basis points to 4.05 percent.
Australia’s two-year swap rate was 67 basis points lower than New Zealand’s after the spread touched 84 basis points last month, the widest since December 2008.
The RBA kept its benchmark interest rate on hold at a record-low 2.5 percent this month and omitted a reference to scope for further stimulus.
“Members agreed that the bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them,” the RBA said in minutes of the meeting released in Sydney today. “Some further decline in the exchange rate would be helpful.”
Traders see about a 39 percent chance that RBA Governor Glenn Stevens and his policy board will reduce rates by April, overnight-index swaps data compiled by Bloomberg show. The likelihood for the Reserve Bank of New Zealand to raise the benchmark rate from 2.5 percent by that month was estimated at 89 percent.
“I’m bearish on the Aussie and bullish on the kiwi from the standpoint of monetary policy,” said Takuya Kawabata, an analyst at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency-margin company. “We can’t rule out the possibility that the RBA will have an easing bias again, given weakness in Australia’s economy is getting visible.”
The RBNZ 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.
The kiwi reached 82.30 U.S. cents yesterday, the strongest since May 16, surpassing the 200-day moving average of 81.83 and the 50 percent retracement of 81.80 from an April 11 high to a June 24 low.
Exceeding a resistance zone that includes these levels “raises the risk that a deeper extension can develop,” Niall O’Connor, a New York-based technical analyst at JPMorgan, wrote in a research note yesterday. A resistance zone refers to an area where sell orders cluster.
New Zealand’s Treasury expects the economy shrank 0.2 percent in the second quarter, Associate Finance Minister Steven Joyce said in parliament before the release of the data on Sept. 19. Gross domestic product is estimated to have grown 0.2 percent during the period, according to a Bloomberg News survey of economists.