Australian Yields Rise on U.S., China Growth; N.Z. Dollar Gains

Australia’s bond yields climbed, extending the steepest rise this quarter among developed markets, on signs of economic growth in China and the U.S. New Zealand’s dollar gained on the outlook for milk production.

The Aussie dollar halted its biggest two-day slide since August after industrial output growth unexpectedly accelerated in China, the South Pacific nation’s biggest trading partner, and domestic home loans increased. The currency touched a five-week low on Nov. 8 after data showed the U.S. added more jobs than forecast last month. The kiwi dollar advanced against its major counterparts after Auckland-based Fonterra Cooperative Group Ltd. said milk-solids volume increased.

“The rise in Aussie yields owes a significant debt to developments in the U.S.,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It’s encouraging that China’s growth seems to be holding up. It’s not accelerating greatly, but it’s not ringing any alarm bells at all. That’s certainly a positive for Aussie.”

Australia’s benchmark 10-year bond yield rose nine basis points, or 0.09 percentage point, to 4.22 percent as of 4:41 p.m. in Sydney. It earlier touched 4.25 percent, the highest level since Oct. 16. Yields on three-year notes gained six basis points to 3.13 percent.

The Aussie was at 93.80 U.S. cents from 93.85 on Nov. 8, when it touched 93.53, the weakest since Oct. 2. It fell 1.5 percent over the previous two sessions. New Zealand’s dollar gained 0.2 percent to 82.70 U.S. cents, rebounding from a 1.5 percent two-day drop.

China Growth

China’s industrial production rose 10.3 percent in October from a year earlier, the National Bureau of Statistics said Nov. 9, exceeding the 10 percent median estimate in a Bloomberg News survey of economists and the previous month’s 10.2 percent.

In the U.S., payrolls grew by 204,000 in October, versus the median forecast for a 120,000 gain, Labor Department data showed Nov. 8. A day earlier, the Commerce Department said gross domestic product grew at a 2.8 percent annualized rate in the third quarter, up from 2.5 percent in the previous period.

“One more good report could see the Fed begin reducing its bond purchases as early as its 17-18 December meeting,” National Australia Bank Ltd. analysts led by Peter Jolly wrote in an e-mailed note to clients. “An early start to Fed tapering should push the USD higher across the board, translating to a lower AUD.”

Housing Market

Australia’s dollar was supported after data today showed the nation’s home loans gained 4.4 percent in September, following a 4 percent decline the previous month.

The Reserve Bank of Australia “has noted that the improvement in the housing market is the result of lower interest rates unlocking demand for dwellings. And prior cuts to the cash rate are still making their way through the economy,” Commonwealth Bank of Australia analysts, including Sydney-based chief economist Michael Blythe, wrote in a research note. “We still see the RBA leaving the cash rate at 2.50 percent for a considerable period.”

Traders see a 9 percent chance the central bank will lower the cash rate by the end of the year, compared with 20 percent odds signaled a month ago, according to interest-rate swaps data compiled by Bloomberg.

Regional central banks have been among the buyers of covered bonds issued by Australian banks, according to the text of a speech delivered today in Sydney by the RBA’s head of domestic markets, Chris Aylmer.

Japanese investors sold a net 4.6 billion yen ($46.5 million) of Australian dollar-denominated debt in September, the least in 11 months, according to Ministry of Finance data released in Tokyo today. They were net buyers of Australia’s sovereign debt for a fourth month.

Kiwi Climbs

Demand for New Zealand’s kiwi dollar increased after Fonterra, the world’s largest dairy exporter, said milk-solids volume rose 4.7 percent in the season to Oct. 31. The value of some products currently held in inventory by a unit could be higher than their expected future selling price, it said.

New Zealand Finance Minister Bill English said today a strong domestic currency has been a headwind for the economy. The U.S. dollar needs to rise to help New Zealand’s economy rebalance, English said, adding that he expects the greenback to strengthen.

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