Aussie Gains for Fifth Day on Fed Stimulus Bets, Rudd Victory
Australia’s dollar rose for a fifth day before Federal Reserve Bank of New York President William C. Dudley speaks today as investors weigh whether the U.S. economy is robust enough for the Fed to reduce stimulus.
The Aussie gained against all but one of its major peers as Kevin Rudd was sworn in as Australia’s prime minister after winning the leadership ballot for the nation’s ruling Labor party over Julia Gillard yesterday. New Zealand’s kiwi dollar rose after business confidence increased to the highest since February 2010.
“We expect Dudley to sing from the same songbook as some other Fed speakers this week to dampen the market’s reaction to Fed tapering,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “The markets are positioned very, very short the Australian dollar and very, very long the U.S. dollar, so the news flow out of the U.S. has to continue being positive to support that.” A short position is a bet an asset will decline in value.
The Australian dollar rose 0.5 percent to 93.20 U.S. cents as of 4:46 p.m. in Sydney, after having gained 0.9 percent in the past four sessions. It has lost 2.6 percent this month.
Technical indicators suggest the Australian dollar’s 11 percent decline against the greenback so far this quarter, the most among the 31 major currencies tracked by Bloomberg, has been too rapid, and is poised for a reversal. The Aussie pushed through the lower limit of an indicator known as the Bollinger band in the past week that analysts use to help identify the turning point in an asset’s trajectory.
Dudley, who has a permanent vote on the Fed panel, said on June 23 the central bank has been too optimistic about the economy in the past.
Fed Chairman Ben S. Bernanke signaled on June 19 the U.S. central bank may “moderate” its $85 billion in monthly bond purchases, known as quantitative easing, later this year and end it mid-2014 if economic improvement continues.
The core personal-consumption-expenditure price index, the preferred measure of inflation for the Fed, probably climbed 1.1 percent in the 12 months through May, according to the median estimate of economists surveyed by Bloomberg News before the data. That would match the smallest increase since records began in 1960.
U.S. gross domestic product grew at a 1.8 percent annualized rate in the first quarter, lower than a prior reading of 2.4 percent, Commerce Department data showed yesterday.
Richmond Fed President Jeffrey Lacker said yesterday in a Bloomberg Television interview he expects “a couple more years of sluggish growth” and that the central bank isn’t close to reducing its bond holdings.
In Australia, Rudd won yesterday’s leadership ballot as the ruling party seeks to revive its fortunes ahead of an election that opinion polls show it will lose in a landslide.
The leadership change “has the potential to bring the election forward, which would be a positive for the economy in terms of sentiment,” said Hans Kunnen, chief economist in Sydney at St. George Bank Ltd.
The yield on Australia’s 10-year government bond fell two basis points to 3.82 percent. The benchmark rate reached 4.04 percent on June 24, the highest since April 2012. The three-year rate dropped seven basis points to 2.82 percent today.
In New Zealand, a net 50.1 percent of companies polled expect the economy will improve in the next 12 months, up from 41.8 percent in May, ANZ said in an e-mailed report today. The net figures subtract pessimists from optimists.
Reserve Bank of New Zealand Deputy Governor Grant Spencer said it isn’t appropriate to raise interest rates at the moment and the central bank is “seriously considering” using other tools to curb a housing-market boom.
Policy makers are “well aware that any official cash rate increases at this time would likely put unwanted pressure on the exchange rate,” Spencer said in a speech in Wellington today.
The central bank bought a net NZ$90 million ($70.6 million) in May, according to figures disclosed in its website today. Its intervention capacity rose to NZ$8.83 billion last month, from NZ$8.48 billion in April, the data show.
New Zealand’s dollar climbed 0.6 percent to 78.41 U.S. cents from yesterday, when it gained 0.6 percent. For the month, the kiwi slid 1.4 percent against the greenback.
New Zealand’s two-year swap rate, a fixed payment made to receive a floating rate, rose two basis points, or 0.02 percentage point, to 3.21 percent.
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