N.Z. Dollar Gains Versus Peers on Rate Bets Before Housing DataKevin Buckland
New Zealand’s dollar climbed versus most of its major peers before data forecast to show building permits rose to a five-year high, after the central bank said a housing boom could force it to raise interest rates.
The nation’s currency, nicknamed the kiwi, held its longest stretch of weekly gains in two years against the so-called Aussie dollar on bets the spread to the Reserve Bank of Australia’s benchmark rate will narrow. New Zealand’s currency extended a weekly advance against the greenback after data showed the U.S. economy grew less than expected. Australian bond yields fell to the lowest since November.
“You have a situation where the inflation outlook is no constraint on the RBA, and in New Zealand, you’ve got a central bank that is increasingly concerned about the impact of housing,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The risks of Aussie-kiwi challenging NZ$1.20 are rising.”
The New Zealand dollar gained 0.5 percent to 85.19 U.S. cents as of 4:47 p.m. in Sydney, extending a 0.7 percent gain last week. It was little changed at NZ$1.2123 per Australian dollar. The Aussie gained 0.5 percent to $1.0328.
Australia’s 10-year government bond yield fell as much as eight basis points, or 0.08 percentage point, to 3.08 percent, the lowest since Nov. 19.
New Zealand housing approvals probably rose 2 percent in March to the highest level since April 2008, according to the median estimate of economists surveyed by Bloomberg News before the figures are released tomorrow.
“The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply,” Reserve Bank of New Zealand Governor Graeme Wheeler said April 24 in a statement following the central bank’s decision to keep borrowing costs unchanged for a third meeting.
Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia. Swaps show traders expect a 10 basis-point increase in New Zealand interest rates over 12 months, compared with 55 basis points of cuts in Australia, according to Credit Suisse Group AG indexes.
The RBA next sets policy on May 7, after leaving the overnight cash rate unchanged for three straight meetings.
Australia’s consumer price index rose 0.4 percent in the first three months of this year from the prior quarter, a report showed on April 24.
“The May 7 RBA meeting is ‘live’ after last week’s low CPI outcome, and we expect that this week’s data will further highlight the softness in the domestic economy,” National Australia Bank Ltd. analysts, led by Global Head of Research Peter Jolly, wrote in a note to clients today.
A report tomorrow may show private sector credit rose 0.3 percent in March from the previous month, according to the median estimate of economists in a Bloomberg survey.
Australian government bond yields fell along with the U.S. dollar after data showed the world’s largest economy grew more slowly than expected in the first quarter. Gross domestic product expanded at a 2.5 percent annual rate, the Commerce Department said on April 26, compared with the 3 percent gain estimated by economists surveyed by Bloomberg.
The South Pacific nation’s bonds returned 1.4 percent in April, the best gain among sovereigns with three AAA ratings after Sweden, and are headed for the biggest rise in 11 months.
Central banks are investing in riskier assets and currencies including the Australian and Canadian dollars as alternatives to lower-yielding U.S. Treasuries, according to a survey of reserve managers earlier this month by Central Banking Publications and Royal Bank of Scotland Group Plc.
“The significance of the Australian dollar in the portfolios of the reserve managers has grown significantly, and that means there will be sovereign interest in buying every dip,” Jesper Bargmann, regional head of spot trading for major currencies at RBS, said in a Bloomberg Television interview today.
Australia will collect A$12 billion ($12.4 billion) less tax revenue in the year to June 30 than forecast by Treasury in October, placing pressure on the federal budget, Prime Minister Julia Gillard said in a speech today in Canberra.
Gillard’s ruling Labor party, trailing in polls ahead of an election in September, is attempting to boost economic credentials damaged when a slump in tax revenue forced her in December to abandon a pledge to return the budget to surplus.