Aussie Bulls Trampling All Over Greenback Face Payrolls Nemesis

  • Australia's currency reaches six-month high versus greenback
  • RBA rate cut bets pared after economy grows more than forecast

The Australian dollar climbed to a six-month high versus the greenback as a retreat in market volatility emboldened investors to pour money into higher-yielding assets at the expense of currencies traditionally deemed havens from financial turmoil.

The currency headed for its best week since October after data showed the best economic growth since early 2012, reducing the odds of Reserve Bank of Australia interest-rate cuts. A strong U.S. payrolls report may impede the currency’s rally. The Aussie has dropped an average of 0.8 percent within six hours of the release of non-farm payrolls data in the last six months, according to data compiled by Bloomberg.

The U.S. currency tumbled against all its major peers in the past week. The Bloomberg Dollar Spot Index dropped 1.1 percent in the period, its biggest slide in four weeks.

“Stabilization and somewhat higher commodity prices have been supportive,” said Georgette Boele, a strategist at ABN Amro Group NV in Amsterdam. “Australian GDP has been above consensus. It looks that commodities have bottomed and this will support currencies of commodity exporting countries.”

The Aussie rose 0.5 percent to 73.87 U.S. cents at 7:14 a.m. New York time, having touched 73.95 cents earlier, the strongest level since August. It has gained 3.7 percent this week, set for the biggest advance since the period ended Oct. 9.

Australia’s currency climbed 3.4 percent this week to 84.02 yen, its biggest gain since January. The yen was little changed at 113.70 per dollar Friday, having strengthened 0.3 percent since Feb. 26.

Australia isn’t the only raw-material producing nation to see its currency gain this week as the Bloomberg Commodity Index rose the most since the period ended Jan. 29. Brazil’s real headed for an 8.8 percent surge versus the greenback, while South Africa’s rand was set for a 3.8 percent climb.

Rate Outlook

The probability of the RBA reducing benchmark borrowing costs from 2 percent by its May meeting sank to about one in three from a coin toss at the end of last week, according to swaps data compiled by Bloomberg. Governor Glenn Stevens left rates unchanged at a policy meeting Tuesday, repeating in his statement he was watching the labor market and the fallout from this year’s global financial market turmoil.

Australian gross domestic product increased 0.6 percent in the fourth quarter, the Bureau of Statistics said Wednesday. That compared with the median estimate for a 0.4 percent gain in a Bloomberg economist survey.

“The stronger GDP print obviously provided a bit of a spark,” said Daniel Been, a Sydney-based currency strategist at Australia & New Zealand Banking Group Ltd. “But the move in rates domestically is not significant enough to justify the size of the move in the Aussie. More likely, it has been caught up in some momentum buying.”

A JPMorgan Chase & Co. gauge of global currency volatility dropped to a one-month low of 10.93 percent as Chinese leaders prepared to hold their annual gathering in Beijing. Premier Li Keqiang will probably use his platform at the National People’s Congress to drive home the point that the government will promote stability against a newly-unveiled basket of major currencies, according to China Merchants Bank Co.

While Australia’s currency has outperformed all its Group-of-10 peers since Feb. 26, the U.S. dollar sits at the bottom before the release of monthly payrolls data Friday. The Labor Department’s jobs report is projected to show payrolls increased by 195,000 workers last month after a gain of 151,000 in January, according to the median estimate of economists in a Bloomberg survey.

“We expect market pricing for a May RBA rate cut to diminish further, which will favor” Australia’s dollar, said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney. “Nonetheless, faster U.S. February average weekly earnings growth may curtail the Australian dollar’s gains as it would lead to an upward revision to U.S. interest-rate expectations.”

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