Australia’s dollar rose against all but one of its major peers after Westpac Banking Corp. dropped its forecast for further Reserve Bank rate cuts this year.
The Aussie rebounded from a weekly loss versus the greenback as Westpac’s chief economist Bill Evans predicted a first rate increase in the third quarter of next year. The currency reversed an earlier drop as Russian stocks advanced, allaying concern about the fallout from a Crimean vote to rejoin Russia. Australian government bonds fell, erasing early gains.
“The forecast is now for flat rates throughout 2014,” Evans, who was the first to call the RBA’s latest easing cycle, wrote in a research note today. Better data on employment, consumption and business confidence will combine “to exclude a sufficiently strong case to cut rates,” the note said.
Australia’s dollar added 0.4 percent to 90.62 U.S. cents as of 6:12 p.m. in Sydney from March 14, after earlier falling as much as 0.4 percent. It dropped 0.4 percent last week. The Aussie strengthened 0.6 percent to 92.05 yen, and gained 0.2 percent to NZ$1.06.
Australia’s 10-year government bond yields advanced one basis point, or 0.01 percentage point, to 4.05 percent, erasing a decline of as much as three basis points. Yields on three-year notes jumped three basis points to 2.91 percent.
Russia’s Micex Index of stocks rose as much as 2.7 percent in early trading.
After Westpac’s withdrawal, six of 34 economists surveyed by Bloomberg News still predict a lower RBA cash rate by the end of the year, including Goldman Sachs Group Inc., JPMorgan Chase & Co., and Macquarie Bank Ltd.
Evans sees the Australian dollar declining to 87 U.S. cents in March 2015, up from the expected 85 cents when rate cuts were forecast. The median forecast of analysts in a Bloomberg poll is for an exchange rate of 87 U.S. cents at that time.
The Australian central bank cut its benchmark rate by 2.25 percentage points from November 2011 through August 2013 as it sought to rebalance the economy away from mining investment and toward domestic demand.
Australian employers boosted full-time payrolls in February by 80,500, the most in more than 22 years, and overall employment climbed 47,300, government data March 13 showed. The nation’s economy expanded faster than forecast last quarter on rising household spending and lower savings, according to a March 5 report.
The Aussie declined in early trading after a referendum in Crimea yesterday sapped demand for higher yielding assets. A total of about 96 percent of voters backed leaving Ukraine to join Russia, preliminary results show. The U.S. and the European Union warned Russia not to annex the Black Sea peninsula, setting the stage for sanctions.
Fallout from the vote will be “front and center,” providing a “key downside risk” for Australia’s currency this week, National Australia Bank Ltd. analysts led by Sydney-based Peter Jolly wrote in a research note today.