The Australian and New Zealand dollars weakened against their major counterparts, paring weekly gains, after a technical indicator signaled the currencies had risen too rapidly.
The Aussie and kiwi reached the highest in more than four months yesterday as Federal Reserve Bank of Chicago President Charles Evans said the U.S. central bank shouldn’t start to slow its asset purchases. Australia’s dollar briefly pared a decline after data showed growth accelerated in China, the South Pacific nation’s biggest overseas market. Reserve Bank of Australia Governor Glenn Stevens reiterated that a weaker currency would help rebalance the economy.
“The Aussie dollar is slightly overvalued at present,” said Andrew Salter, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Sydney. A large part of the Aussie’s rally in the past two days is due to the extraordinarily weak U.S. dollar, so Salter is “a bit cautious about calling the currency higher from here,” he said.
The Aussie dropped 0.1 percent to 96.24 U.S. cents as of 4:37 p.m. in Sydney after touching 96.47 yesterday, the strongest since June 14. New Zealand’s currency retreated 0.3 percent to 84.59 U.S. cents, following an advance to 85.25 yesterday, the highest since May 6.
The 14-day relative-strength index for the Aussie rose to 75 yesterday, above the 70 level that signals an asset price may be poised to reverse course. The equivalent gauge for the kiwi was at 72.
China’s gross domestic product expanded 7.8 percent in the July-September period from a year earlier, the statistics bureau said in Beijing today, matching the median estimate of economists in a Bloomberg News survey. The world’s second-largest economy grew 7.5 percent in the second quarter.
“The market is becoming more accepting of the basing in Chinese activity, and that’s been a positive for the Aussie and kiwi,” said ANZ’s Salter.
For the week, the Australian and New Zealand dollars were poised for their biggest gains since the period ended Sept. 20, with both advancing 1.6 percent.
Evans, a voting member of the Federal Open Market Committee this year, said the central bank should put off reductions in stimulus because of disruptions in economic data caused by a U.S. government shutdown that ended just yesterday.
“Only the data can tell us how much progress we’ve made and they aren’t saying much right now,” he said yesterday in a speech prepared for delivery in Madison, Wisconsin. The Fed should continue the $85 billion of monthly bond buying until data confirm whether the economy has improved sufficiently, the regional Fed chief said.
RBA Governor Stevens said today that recent Australian dollar strength is “not entirely surprising” after the Fed refrained from tapering stimulus in September and as China’s economy firmed.
“I personally would continue to think that a lower currency than this would be helpful in rebalancing the growth sources of the economy,” Stevens said in answer to a question following a speech in Sydney. “I’d prefer it to be lower than this rather than higher.”
Stevens has tempered rhetoric about the exchange rate over recent months, as a rebound in commodity prices eased concern that a strong currency will sap growth.
The yield on Australia’s 10-year government note declined two basis points, or 0.02 percentage point, to 4.12 percent. It rose to as high as 4.28 percent on Oct. 16, extending the yield premium over similar-maturity U.S. debt to 1.57 percentage points, the most since April 12.
“One thing that has been supporting the Aussie is the yield advantage over the U.S. dollar,” said David de Ferranti, a Sydney-based market analyst at FXCM Inc. “There is a big level of resistance at about 96.50 for the Aussie versus the U.S. dollar.”
Resistance refers to a level where sell orders are clustered.