Aussie Remains Higher on Top Debt Rating After France Cut
The Australian dollar maintained a gain from yesterday after France lost its top credit grade from Moody’s Investors Service, spurring speculation the South Pacific nation’s highest-rated debt will draw more investors.
The so-called Aussie snapped a three-day decline versus the New Zealand dollar even after the Reserve Bank of Australia said in minutes of its November meeting that more interest-rate reductions may be appropriate. Australia is one of the seven sovereign borrowers with a stable AAA rating from all three major credit assessors. The New Zealand currency slid for the first time in five days versus the yen after the Bank of Japan (8301) said global economies are slowing.
“There’s more money looking at places like Australia because of the secure AAA rating,” said Ray Attrill, Sydney- based global co-head of currency strategy at National Australia Bank Ltd. “The next one big figure on the Aussie will probably be determined by whether they do cut rates or don’t cut rates in December,” he said, referring to the RBA.
Australia’s dollar was at $1.0413 at 4:41 p.m. in Sydney after climbing 0.7 percent to $1.0412 yesterday. The currency’s implied three-month volatility declined to 7.62 percent, the lowest since July 2007. The Aussie dollar rose 0.2 percent to NZ$1.2717 following a three-day, 0.8 percent slide. New Zealand’s currency fell 0.2 percent to 81.88 U.S. cents.
Moody’s lowered its rating on France by one level to Aa1 from Aaa with a negative outlook, citing a sustained loss of economic competitiveness. Standard & Poor’s downgraded the euro region’s second-biggest economy in January.
Demand for the Aussie was also boosted after the International Monetary Fund said it’s considering classifying it and the Canadian dollar as reserve currencies.
Australia’s dollar is “to be considered for inclusion” separately in the IMF’s “Currency Composition of Official Foreign-Exchange Reserves” data, the lender said in a report published on Nov. 14. It has previously been included in an “other currencies” category in the COFER reports.
The RBA on Nov. 6 left unchanged its overnight cash rate target at 3.25 percent, having lowered the benchmark by 1.5 percentage points since embarking on a series of reductions in November 2011.
“Members considered that further easing may be appropriate in the period ahead,” according to the RBA’s minutes released today. “While a gradual recovery in both dwelling and other business investment was anticipated, assisted in part by the lower level of interest rates, there was also uncertainty about the timing and magnitude of this pick-up.”
Overnight-index swaps data compiled by Bloomberg show traders see a 68 percent chance the RBA will lower the rate to 3 percent at its next meeting on Dec. 4. That compared with a 64 percent possibility observed yesterday.
The meeting record “certainly signals that the RBA has an easing bias as they probably should, given global situations at the moment,” Gavin Stacey, Sydney-based chief interest-rate strategist at Barclays Plc, said in an interview with Bloomberg Television. “Global investors are running to Australia because it’s such a relatively safe place to invest but, of course, that stampeding to Australian government bonds has indeed created a lot of expensiveness across the curve.”
The nation’s bonds fell, with 10-year yields rising seven basis points, or 0.07 percentage point, to 3.16 percent. The rate slid to a record low of 2.70 percent on June 4.
Both the Australian and New Zealand dollars weakened against the yen after the BOJ said the world’s third-largest economy will remain “relatively weak” and overseas economies are in a deceleration phase. The BOJ refrained from adding to monetary easing today.
The Aussie declined against Japan’s currency for the first time in five days, dropping 0.2 percent to 84.61 yen. The New Zealand currency slid 0.3 percent to 66.54 yen.
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