Aussie Rebounds From September 2010 Low Before RBA; Kiwi Climbs

Australia’s dollar rebounded from the lowest since September 2010 on speculation its biggest quarterly decline in almost five years was excessive and amid bets the Reserve Bank will refrain from cutting rates tomorrow.

The currency’s one-month implied volatility against the dollar was near the most in 1 1/2 years as investors weighed the policy outlook locally and in the U.S. Demand for Aussie was limited amid signs China’s economy is slowing and speculation the Federal Reserve will reduce stimulus. The New Zealand dollar rallied from a decline at the end of last week.

“I think the RBA is going to maintain their wait-and-see rhetoric that they had in the last meeting,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “The fall in Aussie will provide some stimulus into the economy itself. If you start to see Aussie sub 90 and staying there, I think interest-rate cuts from the RBA will become less likely.”

The Australian dollar rose 0.7 percent to 92.02 U.S. cents as of 4:45 p.m. in Sydney, after touching 91.10 U.S. cents, the lowest since September 2010. It lost 12 percent last quarter, the biggest drop since the three months ended September 2008, and weakened 4.5 percent in June.

The Aussie’s 14-day relative strength index versus the greenback fell to 29 last week, below the 30 level some traders see as a sign an asset’s price may reverse direction. The currency pair’s one-month implied volatility rose 67 basis points to 14.62 percent. It jumped to 15.46 percent on June 24, a level unseen since December 2011.

‘Weakness Ahead’

“The currency is becoming more volatile,” Tim Riddell, the Singapore-based head of global markets research at Australia & New Zealand Banking Group Ltd. said on a conference call today. “As the day-to-day swings increase, the attractions of carry trade become less advantageous. There’s probably more weakness ahead in the short term.”

The Aussie gained 1.1 percent to 91.58 yen from the end of last week, when it fell 0.7 percent. It was little changed at NZ$1.1830 from June 28 after dropping to NZ$1.1753 on June 20, the weakest since January 2009.

Swaps traders see a 23 percent chance the Reserve Bank of Australia will cut interest rates at a policy meeting tomorrow.

The official Purchasing Managers’ Index of Chinese manufacturing fell to 50.1 in June from 50.8 the previous month, the government said today. The figure was in line with economists’ estimates in a Bloomberg News survey.

U.S. Economy

In the U.S., the Institute for Supply Management’s factory index probably rose to 50.5 in June from 49, according to the median estimate of economists in a Bloomberg survey before the data today.

Fed Chairman Ben S. Bernanke signaled on June 19 the U.S. central bank may “moderate” its $85 billion in monthly bond purchases, known as quantitative easing, later this year and end it mid-2014 if economic improvement continues.

A gauge of Australian manufacturing rose to 49.6 last month from 43.8 in May, the Australian Industry Group said in a survey released today. Consumer prices rose 2.4 percent last month from a year earlier after a 2.2 percent year-on year increase in May, an index compiled by TD Securities Inc. and the Melbourne Institute showed today.

The International Monetary Fund’s debut report on reserve-manager holdings of the Australian dollar revealed that the currency may be vulnerable to quick outflows of capital that would jeopardize the nation’s economy.

Reserves Data

The IMF said June 28 that global reserve managers such as central banks held the equivalent of $99 billion in the first quarter. The Australian government said last month foreign investors owned A$206.8 billion ($189 billion) of its sovereign securities. Before the IMF report, UBS AG strategists said that so-called official accounts likely held the “lion’s share” of the nation’s bonds, which should be reassuring because “their investment horizons are measured in years, not days.”

The yield on Australia’s 10-year government bond rose six basis points, or 0.06 percentage point, to 3.82 percent.

Moody’s Investors Service said Australia’s Aaa debt ratings remain stable, citing economic resilience, government financial strength and low susceptibility to event risk.

New Zealand’s dollar added 0.5 percent to 77.76 U.S. cents from June 28, when it capped a 7.6 percent quarterly drop. It rose 0.9 percent to 77.42 yen.

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