Aussie Dollar Trades Near 7-Week High on Pared Rate Cut Bets
Australia’s dollar traded 0.3 percent from the seven-week high it reached yesterday as signs the nation’s economy is stabilizing prompted investors to trim bets on interest-rate cuts by the central bank.
The so-called Aussie headed for a third weekly advance as an index of leading economic indicators rose. Reserve Bank of Australia Governor Glenn Stevens will speak in Sydney next week. New Zealand’s dollar was near a two-week high after a private report showed an gain in job advertisements. Demand for both currencies was limited after Cyprus failed to reach an agreement with Russia on financial support for the nation’s banks, damping risk appetite.
“Expectations for an imminent rate cut by the RBA have been pared back,” said Takuya Kawabata, an analyst at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “Even as risks around Europe linger, the Australian dollar has been supported by positive domestic factors. There don’t seem to be serious concerns in the market yet that the crisis in Cyprus will spread to other nations such as Italy and Spain.”
Australia’s currency dipped 0.1 percent to $1.0428 as of 5:17 p.m. in Sydney from yesterday, when it touched $1.0459, the highest since Jan. 30. For the week, it’s poised for a 0.2 percent gain against the greenback. The Aussie dropped 0.4 percent to 98.74 yen.
New Zealand’s kiwi dollar gained 0.1 percent to 83.23 U.S. cents from yesterday, when it reached 83.45, the strongest since March 6. It has gained 0.6 percent this week. The currency weakened 0.2 percent to 78.79 yen.
The New York-based Conference Board’s gauge of leading Australian economic indicators climbed 0.2 percent to 121.9 in January after a revised 0.2 percent decline in December, according to a report today.
RBA Assistant Governor Malcolm Edey played down the risks in Australian financial industry, saying banks are under more market discipline to manage risks.
“To the extent that any generalized financial overhang exists, it is less likely to be a problem here than elsewhere,” Edey said in a text of speech to be delivered in Melbourne today. “The combination of regulatory and private sector responses around the world seems likely to result in reduced financial risk-taking in the foreseeable future.”
“Interest-sensitive parts of the economy continued to show signs of responding to these low rates,” according to minutes of the central bank’s March 5 meeting released earlier this week. “It was appropriate to hold rates steady, and to assess further developments.”
Interest-rate swaps data compiled by Bloomberg show traders see a 18 percent chance the RBA will cut the benchmark rate at the next meeting on April 2, compared with the 30 percent odds priced in one month ago. Governor Stevens will speak on March 26.
Local bonds gained as regional stocks declined amid concern Cyprus’s abortive bailout plan will worsen Europe’s debt crisis. “I think we were not able to get the support that we wanted to get” from Russia, Cypriot Finance Minister Michael Sarris said today while leaving a Moscow hotel. “We must go back home because things are getting serious.”
The European Central Bank said in an e-mailed statement yesterday it will cut Cypriot banks off from emergency funds after March 25 unless the Mediterranean island agrees on a rescue program with the European Union and International Monetary Fund.
Yields on Australian three-year notes fell four basis points, or 0.04 percentage point, to 3 percent. The 10-year rate slid 3 basis points to 3.56 percent. The MSCI Asia Pacific Index of stocks declined 0.7 percent.
In New Zealand, the number of job advertisements in newspapers and the Internet increased 1 percent last month from January, according to an Australia & New Zealand Banking Group Ltd. (ANZ) survey released in Wellington today.
New Zealand’s two-year swap rate, a fixed payment made to receive a floating rate, rose half a basis point to 2.915 percent. Yields on 10-year New Zealand bond fell three basis points to 3.68 percent.
Pacific Investment Management Co., the manager of the world’s biggest bond fund, said it is overweight on Australian and New Zealand government bonds. Both countries “stack up relatively well” compared to other developed nations in terms of debt levels and growth prospects, Scott Mather, head of global portfolio management at Pimco, said on a conference call from Auckland.
Expectations for price swings in the Australian dollar are near the lowest in almost 13 years relative to major currencies as central bank purchases of the so-called Aussie damp its sensitivity to political turmoil at home and abroad.
Implied three-month volatility on the Australian dollar, a measure used to price options, fell to 7.21 percent, the lowest level this week, data compiled by Bloomberg show. The JPMorgan Group of Seven Volatility Index climbed to 9.52 percent, a three-week high. Aussie volatility was 2.43 percentage points less than the JPMorgan gauge on March 19, the widest discount since March 31, 2000.
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