Aussie Shows Resilience Passing Rate-Cut Baton to Plunging Kiwi

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Australia’s dollar rose against the kiwi, adding to its biggest three-week gain since 2009, as traders bet the larger nation won’t cut interest rates again and New Zealand will.

The New Zealand dollar plummeted after Australia & New Zealand Banking Group Ltd. said the nation’s central bank is set to cut its key interest rate in both June and July. Speculators scrapped bets the Aussie will fall versus the greenback as swaps traders priced in expectations that Australian policy makers will hold borrowing costs unchanged for 12 months after reducing their key rate to a record on May 5.

“Aussie has outperformed because the RBA has indicated that’s the end of the easing for now,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland, referring to the central bank’s rate cut on May 5. “The market will continue to price in easing in New Zealand, and I don’t see anything in the near term that’s going to change that.”

The Aussie rose 0.8 percent to NZ$1.0673 as of 12:16 p.m. in Sydney, after touching NZ$1.0698, a level unseen since Feb. 3. The Australian currency declined 0.4 percent to 79.01 U.S. cents and the kiwi slid 1.2 percent to 74.03 U.S. cents.

For the first time since September, hedge funds and other large speculators are no longer betting on Aussie declines. Bullish wagers on the Aussie exceeded bearish ones by 626 contracts in the week through May 5, according to the latest data available from the Commodity Futures Trading Commission in Washington. Two months earlier, the net shorts stood at a record 76,851.

‘Proven Right’

Swaps traders see 10 basis points, or 0.1 percentage point, in rate cuts at the RBA over the next 12 months, compared with 44 basis points of reductions at the RBNZ, according to the Credit Suisse indexes.

“The OCR should be lower,” ANZ’s Wellington-based chief economist Cameron Bagrie wrote in a client note calling for consecutive cuts starting next month to New Zealand’s official cash rate. “The RBNZ may ultimately be proven right and the inflationary dragon is merely sleeping. If so the OCR can head back up. However, alternate scenarios are real. It’s looking more like Sleeping Beauty than a dozing dragon.”

The kiwi dollar has dropped 5.9 percent over the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The Aussie has declined 0.8 percent, compared with a 4.1 percent slide in the greenback.

Australia’s Treasurer Joe Hockey is scheduled to deliver the annual budget on Tuesday. The government is likely to estimate a budget deficit of A$40 billion ($31.6 billion) for the 12 months ending June 30, 2016, about 2.4 percent of gross domestic product, according to a Bloomberg survey of analysts. That compares with an estimate of A$17 billion for the same fiscal year that Treasury published in May 2014.

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