Aussie Gains Versus Peers as Trade Deficit Smaller Than Forecast

Australia’s dollar rose against most of its major counterparts after data showed the nation’s trade deficit unexpectedly shrank to a 14-month low.

The so-called Aussie rose a second day against the yen amid speculation the Bank of Japan will expand monetary easing at a two-day policy meeting starting today. The Reserve Bank of Australia refrained from cutting rates yesterday and said existing stimulus is working. New Zealand’s dollar traded near a six-week high after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole milk powder prices climbed to a record.

“The Aussie was braced for another large deficit, and it got something close to balance,” said David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne. “If this is a sign that the export expansion is coming through, it plays into the wider growth story.”

Australia’s currency was little changed at $1.0460 at 4:56 p.m. in Sydney from yesterday. The Aussie gained 0.2 percent to 97.82 yen following a 0.5 percent advance yesterday.

New Zealand’s kiwi dollar was at 84.11 U.S. cents from 84.14 yesterday, when it touched 84.46, the highest since Feb. 20. It was little changed at 78.67 yen.

Yields on Australian 10-year bonds rose three basis points, or 0.03 percentage point, to 3.43 percent. The three-year rate added four basis points to 2.93 percent.

Trade Data

Australia’s imports outpaced exports by A$178 million ($186 million) in February, compared with a revised A$1.22 billion shortfall in January, the Bureau of Statistics said in a statement today. That was the smallest deficit since the trade balance was in surplus in December 2011. Economists in a Bloomberg News survey expected a A$1 billion shortfall.

“There are a number of indications that the substantial easing of monetary policy during late 2011 and 2012 is having an expansionary effect on the economy,” RBA Governor Glenn Stevens said in a statement yesterday after leaving the overnight cash-rate target at 3 percent. He was reappointed for a further three-year term today.

Benchmark rates are as low as zero in the U.S. and Japan. The BOJ will decide at this week’s meeting to boost monthly bond purchases by about 50 percent to 5.2 trillion yen ($55.7 billion), according to the average forecast in a Bloomberg poll. The European Central Bank also sets policy tomorrow.

“Our interest rates are on hold and the rest of the world continues to print money,” Hans Kunnen, Sydney-based chief economist at St. George Bank Ltd., said on a conference call with clients today. “That makes a case for saying the Aussie can get to $1.06 in the months ahead.”

Reserve Diversification

For the first time, central banks are using their reserves to buy about the same amount of currencies from Australia to Canada as they are U.S. dollars in a sign that the pace of diversification is accelerating.

Allocations to so-called non-reserve assets rose by $30.1 billion in the final quarter of 2012, the most in a year, while those going to the dollar increased by $31.5 billion, according to International Monetary Fund data released on March 29.

Australia’s dollar has strengthened 2.8 percent in the past month, the biggest increase among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Canadian dollar gained 1.3 percent in the same period, while New Zealand’s currency rose 2.1 percent.

In New Zealand, milk powder for June delivery increased 12.8 percent to $5,998 a metric ton, according to a trade-weighted index on Fonterra’s GlobalDairyTrade website.

Demand for the kiwi and Aussie was supported after data showed that services industries expanded at a faster pace in China, the biggest trading partner of both Australia and New Zealand.

The non-manufacturing Purchasing Managers’ Index rose to 55.6 in March from 54.5 in February, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today. Readings above 50 signal expansion.

-- Editors: Naoto Hosoda, Ken McCallum

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