The New Zealand and Australian currencies snapped two-day gains versus the greenback as Federal Reserve policy makers debate a reduction in U.S. stimulus that’s elevated asset prices across the globe.
The kiwi dollar fell against all its major peers as New Zealand Finance Minister Bill English said his nation would benefit if the currency weakens. The Aussie was supported by private reports showing Australia’s leading economic indicators improved in July. The Fed concludes a meeting today, with economists forecasting a $5 billion cut in monthly bond buying.
“The Aussie and particularly the kiwi have rallied quite significantly over the last two to three weeks,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. Before the Fed’s announcement “people that have been long these currencies are perhaps taking a little bit of risk off the table.” A long position is a bet an asset will rise.
The kiwi fell 0.1 percent to 82.26 U.S. cents as of 4:51 p.m. in Sydney after climbing as much as 1 percent to 82.49 yesterday, the highest since May 16. The Aussie was unchanged at 93.56 U.S. cents after rising 1.2 percent in the two days through yesterday.
The yield on Australia’s three-year note added one basis point to 2.91 percent, while the rate on the 10-year security advanced two basis points to 4.06 percent.
In the U.S., the Federal Open Market Committee will reduce Treasury purchases by $5 billion to $40 billion, while continuing to buy $40 billion of mortgage backed securities, according to the median estimates of economists surveyed by Bloomberg News.
New Zealand’s English said his nation’s companies would be comfortable with the kiwi dollar at the high 70 U.S. cents level. The finance minister is betting that gradual reduction in stimulus by Fed will raise U.S. interest rates and help the kiwi decline, regardless of expectations that the Reserve Bank of New Zealand will start to raise borrowing costs next year.
“A fair bit of that effect is priced in, and we look forward to further positive developments as the Federal Reserve continues to unwind,” English said in a Bloomberg Television interview. “We’re in a pretty good position to benefit from any relaxation of pressure on the kiwi exchange rate.”
The currency has strengthened 6.3 percent this quarter, the best performer among the greenback’s 16 major counterparts, while the Australian dollar has risen 2.4 percent.
The deficit in New Zealand’s current account, the broadest measure of trade, was NZ$1.252 billion ($1.03 billion) in the second quarter, the statistics office said today, compared with the estimate of NZ$1.9 billion in a Bloomberg survey of economists. The negative balance for the prior period was also revised lower.
The nation’s whole-milk powder prices rose for the second time in three auctions to remain near four-month highs, according to Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter.
Powder for delivery across all contracts through March rose 1.1 percent, according to a trade-weighted index posted on Fonterra’s GlobalDairyTrade website.
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.
“We are broadly constructive on the New Zealand dollar,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. The central bank has a hawkish policy stance, while “the economy is still outperforming, commodity prices are very high.”
Traders see about an 87 percent chance that the RBNZ will raise the benchmark rate by April, overnight-index swaps data compiled by Bloomberg show. The likelihood for the Reserve Bank of Australia to lower the benchmark rate from 2.5 percent by that month was estimated at 39 percent.
The New York-based Conference Board said today its index of leading economic indicators for Australia rose 0.3 percent in July from a revised 1.1 percent decline in June. A separate gauge by Westpac Banking Corp. and Melbourne Institute in Sydney showed growth of 0.6 percent in July after stagnating the month before.