Australian Dollar Advances as Gold Prices Increase

Australia’s dollar gained against most of its major peers, erasing earlier losses, as advances in metal prices supported demand for the currency of the resource-rich nation.

The so-called Aussie strengthened versus the greenback and the yen amid speculation central banks in other major economies will continue to loosen monetary policy more than the Reserve Bank of Australia. Japan’s Prime Minister Shinzo Abe is likely to nominate Haruhiko Kuroda as Bank of Japan governor, according to two officials with knowledge of the matter. Local bonds rose, sending 10-year yields to a one-month low on concern Italy’s inconclusive election will result in renewed turmoil in Europe.

“Longer term, we expect the underlying fundamentals for the Aussie dollar to be stronger,” said Janu Chan, a Sydney based economist at St. George Bank Ltd. “While we are expecting the RBA to cut once more, interest rates are going to be relatively high. We still have strong demand for Australian government bonds.”

The Australian dollar rose 0.1 percent to $1.0271 at 4:36 p.m. in Sydney from yesterday, when it declined 0.6 percent. It dropped to $1.0222 on Feb. 21, the lowest since Oct. 15. The Aussie gained 0.3 percent to 94.43 yen, rallying from yesterday’s 2.3 percent drop.

New Zealand’s dollar fetched 83.41 U.S. cents, after falling 0.6 percent to 83.35 yesterday. The so-called kiwi climbed 0.3 percent to 76.70 yen, after losing 2.4 percent by the close in New York.

The yield on Australia’s 10-year bonds fell 12 basis points, or 0.12 percentage point, to 3.38 percent, the lowest since Jan. 25.

Gold Rises

Shares of Newcrest Mining Ltd., Australia’s largest gold producer, rose 1.9 percent. The spot price for the precious metal gained as much as 0.3 percent to $1,598.55 an ounce. Gold was Australia’s third biggest commodity export in 2010 after iron ore and coal, according to government figures.

“Data out of China is suggesting growth has stabilized and commodity demand will be still well supported,” said St. George’s Chan. “That’s going to be supportive for the Australian dollar longer term.”

Abe is likely to nominate Asian Development Bank President Kuroda for the post of BOJ governor, and Kikuo Iwata and Hiroshi Nakaso for deputy roles, according to two officials with knowledge of the discussions.

Further Easing

In a Feb. 11 interview, Kuroda said he favors additional stimulus this year, and the central bank has “really substantial room for monetary easing.”

Federal Reserve Chairman Ben S. Bernanke will deliver his semiannual testimony on monetary policy to the Senate Banking Committee today, and will speak before the House Financial Services Committee tomorrow.

The Fed at its January meeting decided to continue buying $45 billion a month of Treasuries and $40 billion in mortgage debt without setting a limit on the duration or total size of the purchases.

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets.

Australia’s dollar earlier declined toward the lowest in more than four months after Reserve Bank Assistant Governor Guy Debelle indicated monetary policy may be eased as the currency’s strength damps the economy.

RBA Policy

Debelle said in a speech in Adelaide today the central bank retains “scope to lower interest rates further, should the need arise, including to counterbalance the pressures of an elevated exchange rate.”

The RBA lowered its cash rate by 1.75 percentage points since Nov. 1, 2011, to 3 percent, matching a half-century low reached in 2009.

Australia’s currency has gained 1 percent this year, according to Bloomberg Correlation-Weighted Indexes. Its New Zealand counterpart has strengthened 3.1 percent in the same period, the best performer among the 10 developed-nation currencies.

Interest-rate swaps data compiled by Bloomberg show traders see a 35 percent chance the RBA will lower the rate to 2.75 percent on March 5.

In Italy, partial election results suggested the four-way race may end in a divided parliament, requiring another vote. Broadcaster RAI showed Democratic Party candidate Pier Luigi Bersani winning the lower chamber and former Prime Minister Silvio Berlusconi with a blocking minority in the Senate.

Risk aversion is likely to weigh on the Australian dollar, according to Ray Attrill, the Sydney-based global co-head of currency strategy at National Australia Bank.

“The ‘nightmare’ scenario of a Bersani-controlled lower house and a Senate effectively controlled by former Prime Minister Silvio Berlusconi is being rapidly priced in to markets,” he wrote in a note to clients today.

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