Aussie Leads Commodity Currencies Higher as GDP Eases Rate Bets

  • Kiwi, Canada’s dollar gaining on ‘improved risk sentiment’
  • Swaps traders pricing in lower probability of RBA rate cut

Australia’s dollar led gains in commodity currencies after first-quarter economic growth was stronger than expected, stoking expectations the Reserve Bank of Australia will refrain this month from cutting interest rates again.

The Aussie advanced against all but one of its 16 major peers on Wednesday after a government report showed gross domestic product increased 1.1 percent in the first quarter from the previous three months, compared with the median estimate of 0.8 percent in a Bloomberg survey of economists. The New Zealand dollar climbed for a second day, while the Canadian currency snapped a three-day decline.

“This was a strong headline,” said Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank Ltd. “This reduces the risk of an immediate RBA follow-on rate cut to the cut they delivered in May. They could afford to be a little bit more patient now.”

Australia’s dollar rose for a third day, advancing 0.4 percent to 72.65 U.S. cents as of 7:46 a.m. in London. The kiwi added 0.2 percent to 67.77 U.S. cents, after jumping 1 percent on Tuesday, while the Canadian dollar climbed 0.1 percent to C$1.3081, snapping a three-day, 0.9 percent drop.

Risk Appetite

The kiwi and the Canadian dollar have gained with “the improved risk sentiment within the commodity block,” which eases pressure for their respective central banks to act, said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney. A gauge of commodities is hovering near a six-month high.

The Australian dollar has weakened about 5.2 percent since May 2, the day before the RBA unexpectedly cut its benchmark to a record 1.75 percent to combat weakening inflation. The central bank will set rates again Tuesday.

The Reserve Bank of New Zealand, which surprised markets with a cut to its benchmark rate in March, will next meet on June 9. Bank of Canada announces its policy decision on July 13.

Swaps traders are pricing about a 46 percent probability that the RBA will cut its benchmark again by August, according to data compiled by Bloomberg. They had been pricing 54 percent odds at the end of last week.

“There are a number of arguments for the Aussie to improve at least in the short term,” said Westpac’s Rennie. “One, we’ve come long way in a short period of time; two, commodities in general look like they are consolidating; and three, the probability of RBA moving this month is falling and today’s data adds a bit to that.”

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