Aussie Dollar Holds Gain Versus Greenback on Fed Stimulus Bets

Australia’s dollar held a two-day gain versus the U.S. currency on bets the Federal Reserve will affirm its commitment to so-called quantitative easing at the end of a policy meeting today.

New Zealand’s kiwi dollar maintained its biggest monthly advance against the greenback since September ahead of U.S. data forecast to show manufacturing activity cooled and private employers added the fewest jobs since October. Factory production expanded in China, the biggest trading partner of both South Pacific nations.

“Not everything is all bright and rosy” in the U.S., Janu Chan, a Sydney-based economist at St. George Bank Ltd., said on a conference call with clients. “QE from the Fed and elsewhere can only mean further upside for the Australian dollar.”

The so-called Aussie slid 0.2 percent to $1.0353 as of 5:01 p.m. in Sydney, following a 0.9 percent gain over the previous two days. The New Zealand dollar added 0.1 percent to 85.72 U.S. cents, after rising 2.3 percent in April.

Two-year Australian bond yields touched 2.56 percent, the lowest since Nov. 1. Ten-year rates were little changed at 3.1 percent.

Prospects the Fed will taper its $85 billion of monthly bond purchases have diminished amid a slowing economic recovery. Minutes from the March meeting show several Fed officials discussed slowing the pace of stimulus.

Private employment rose by 150,000 in April after gaining 158,000 the previous month, data from the Roseland, New Jersey-based ADP Research Institute will probably show today, according to the median estimate of economists surveyed by Bloomberg News.

U.S. Manufacturing

The Institute for Supply Management manufacturing index, sank to 50.6 in April from March’s 51.3, a second consecutive decrease, according to a separate Bloomberg poll ahead of today’s release. Readings above 50 signal expansion.

“No one should be expecting either a change in the $85 billion monthly QE pace” or “a hint that the case for tapering QE has grown,” Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., wrote in a research note today.

Benchmark interest rates of 3 percent in Australia and 2.5 percent in New Zealand contrast with close to zero in the U.S. and in Japan, where central bank Governor Haruhiko Kuroda has doubled monthly bond purchases in pursuit of 2 percent inflation within two years.

The kiwi has climbed 7.4 percent over the past 12 months, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, while the Aussie has gained 1.8 percent. The dollar has risen 1.6 percent, and the yen has tumbled 18 percent, the biggest loser on the indexes.

Aussie Gains

The resilience of Australia’s currency is a function of the strength of its economy, Treasurer Wayne Swan said at a business lunch in Melbourne today. Swiss-style intervention to weaken it would be “folly,” he said. The Swiss National Bank used 188 billion francs ($202 billion) of reserves last year to cap its currency at 1.20 per euro.

The Australian and New Zealand dollars were supported versus the greenback after factories expanded output for a seventh straight month in China. The manufacturing purchasing managers’ index eased to 50.6 in April from 50.9 the month before, according to the Beijing-based National Bureau of Statistics and Federation of Logistics and Purchasing.

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