Aussie-Kiwi Seen Breaking Narrowest-Ever Range: Market Reversal

Australia’s dollar is set to break out of the narrowest trading range on record versus its New Zealand peer, trading patterns suggest, amid speculation monetary policy divergence between the two nations is being tempered.

The Aussie will probably rise in coming weeks above NZ$1.0948, the top of its range this year, and strengthen toward its 200-day moving average of NZ$1.1034, according to Karen Jones, a technical analyst in London at Commerzbank AG. The Australian currency rallied to a one-week high yesterday after dropping on May 6 to NZ$1.0649, below a trendline running through its March 2013 high. Its recovery to levels above the trendline may presage further gains, Jones said.

“The next time it goes up and tests the level around NZ$1.0950, it should actually break,” Jones said yesterday by phone. “A return to the point of break-out from a previous trendline is deemed as pretty bullish.”

Surging building approvals and a payrolls report that beat economists’ expectations signal a strengthening recovery that may allow the Reserve Bank of Australia to consider raising interest rates, just as New Zealand central bank Governor Graeme Wheeler tries to talk down his nation’s exchange rate.

“The RBNZ has been trying to talk down the kiwi of late, and that’s taken some of the wind out of the currency’s gains earlier this week,” Prashant Newnaha, an Asia-Pacific macro strategist at TD Securities Inc. in Singapore, said yesterday in a phone interview. “The Aussie data has been consistently strong for the last couple of months, and while the RBA feels quite comfortable with how things are progressing at the moment, the real trigger will be inflation.”

Aussie Forecasts

The Aussie will advance to NZ$1.11 by Sept. 30 and NZ$1.13 by year-end, Newnaha said. The median forecast of 44 strategists surveyed by Bloomberg puts it at NZ$1.07 on Dec. 31, based on cross rates against the greenback.

The Australian dollar has traded this year from a low of NZ$1.0493 set Jan. 24 to Feb. 4’s high of NZ$1.0948, a 4.55-cent range that’s less than in any full year since the kiwi was freely floated in 1985. The Aussie is down 0.2 percent versus the kiwi in 2014, after last’s year’s 13.5 percent drop. It was little changed at NZ$1.0829 as of 2:37 p.m. in Sydney.

Since the start of this year, Australia’s dollar has been bouncing between the upper and lower limits of its Bollinger Band versus the kiwi, and has been rising since reaching the lower limit of the technical indicator on May 6. Developed by John Bollinger in the 1980s, this method helps identify the turning point in a currency or other asset’s trajectory.

Recovery Signs

An Australian statistics bureau report yesterday showed employers added 14,200 jobs last month, beating the 8,800 forecast by economists surveyed by Bloomberg. Figures on May 5 showed permits to build or renovate houses and apartments jumped 20 percent in March from a year earlier. Analysts predict a May 13 report will show house prices rose 3 percent in the first quarter from the previous period, when they climbed by the most in more than three years.

A report on April 23 showed Australia’s trimmed mean measure of core consumer prices rose 2.6 percent in the three months through March, matching a gain in the previous quarter and remaining above the middle of the central bank’s 2 percent to 3 percent target.

The RBA said in its quarterly monetary policy statement released today that interest rates will remain on hold for the foreseeable future. Policy makers cut their core inflation forecast for June to 2.75 percent from 3 percent.

The median forecast in a Bloomberg survey of economists predicts the RBA will lift its benchmark interest rate to 2.75 percent, from a record-low 2.5 percent, by the first quarter of 2015. TD Securities sees the cash rate at 3 percent by the end of this year, predicting two quarter-percentage-point increases in the fourth quarter.

Wheeler Warning

In New Zealand, Wheeler warned May 7 that sustained strength in the local dollar while export prices are weakening would raise the odds of policy makers intervening in the currency markets. New Zealand became the first major developed nation to boost borrowing costs since 2011 when it lifted the key rate by a quarter-point to 2.75 percent on March 13, before raising it again to 3 percent last month as the economy gathered pace.

Traders have lowered their expectations for further New Zealand rate increases in the next 12 months to 0.83 percentage point, from 1.35 just before the March boost, a Credit Suisse Group AG index shows.

“It seems parity” between the Aussie and kiwi “is not to be,” Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, said yesterday in a client note.

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