Australian Dollar Trades Near 1 1/2-Year Low on Fed Prospects

Australia’s dollar traded 0.6 percent from the lowest level since 2011 before U.S. data forecast to show improvements in consumer confidence and manufacturing amid speculation the Federal Reserve may slow stimulus.

The Aussie’s one-month volatility versus the greenback was near the highest since June. The currency rebounded against the yen, snapping a four-day slide, as technical indicators signaled recent losses were excessive. Chairman Ben S. Bernanke said last week the Fed may slow quantitative easing if there are signs of sustained economic growth. Demand for the Australia and New Zealand currencies was limited on prospects slowing Chinese output will curb the South Pacific nations’ exports.

“It would be interesting to see whether the expectations will continue for the Fed to wind down QE,” said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “There’s a bit of uncertainty about China. Chinese data this week could increase the chance of the RBA cutting sooner rather than later. I wouldn’t rule out Aussie falling further,” Chan said, referring to the Reserve Bank of Australia.

The Australian dollar was little changed at 96.40 U.S. cents as of 3:10 p.m. in Sydney from 96.34 yesterday. It reached 95.82 on June 1, the lowest since October 2011. The currency’s one-month implied volatility was at 11.160 percent from 11.255 percent yesterday, when it reached 11.375, the highest since June 26.

Aussie Rebounds

The Aussie jumped 1 percent to 98.23 yen, after dropping 3.2 percent over the previous four sessions. The currency traded at NZ$1.1924 from NZ$1.1917 yesterday, when it touched NZ$1.1886, the lowest since January 2009.

New Zealand’s dollar was unchanged at 80.85 U.S. cents. The kiwi strengthened 1 percent to 82.39 yen.

Australia’s 10-year bond yield rose 5 basis points, or 0.05 percentage point, to 3.32 percent. New Zealand’s two-year swap rate, a fixed payment made to receive a flowing rate, rose 4 basis points to 2.95 percent.

The Conference Board’s index of U.S. consumer sentiment probably climbed to 71 this month from 68.1 in April, according to the median estimate of economists surveyed by Bloomberg News before the New York-based private research group releases the data today.

Data last week from HSBC Holdings Plc and Markit Economics showed a preliminary reading for a purchasing manager’s index of Chinese manufacturing fell to 49.6 in May, below the 50.4 estimated by economists in a Bloomberg survey. A reading below 50 indicates a contraction.

Trading Partner

China is the biggest trading partner for both Australia and New Zealand. A PMI reading from the Chinese government is due for release on June 1.

Interest-rate swaps data compiled by Bloomberg show traders see a 26 percent chance the central bank will lower its benchmark to 2.5 percent at the next meeting on June 4.

The Australian’s dollar’s 14-day relative strength index versus the yen dropped to 30.7 yesterday, near the 30 level which indicates an asset’s price has fallen too rapidly and may be poised to reverse course.

Before it's here, it's on the Bloomberg Terminal.