Aussie, Kiwi Climb After Bernanke Says U.S. Still Needs Stimulus

Australia’s dollar surged to the highest in two weeks after Federal Reserve Chairman Ben S. Bernanke signaled there would be no immediate reduction in U.S. stimulus that has helped boost asset prices across the world.

The Aussie rose for the third time in four days, rallying from a three-week slide, and government bond yields fell. The Australian economy unexpectedly added workers in June, while the jobless rate rose to the highest in nearly four years. New Zealand’s kiwi dollar touched a three-week high.

“A pretty clear dovish slant from Bernanke is seeing an unwind of dollar longs,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG. “Given that both the Aussie and kiwi have been weighed on heavily by expectations of the Fed tapering its bond purchases, both are benefiting now.”

The Australian dollar gained 1.1 percent to 92.75 U.S. cents as of 4:42 p.m. in Sydney from yesterday, after earlier touching 93.06, the highest since June 27. The yield on the benchmark 10-year bond fell as much as 12 basis points, or 0.12 percentage point, 3.72 percent, the least since June 21.

The New Zealand dollar surged 1.3 percent to 79.40 U.S. cents, after reaching 79.69, the most since June 19. It rose 0.2 percent to NZ$1.1682 per Aussie, after touching NZ$1.1640, the strongest since November 2008.

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday after a speech in Cambridge, Massachusetts.

The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on borrowing costs in the third round of its quantitative-easing stimulus program. The purchases tend to devalue the U.S. currency.

‘Fundamental Instability’

The U.S. dollar sell-off is “mostly a case of squeezing positions which had built up, rather than anything more fundamental about the Fed stance,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, wrote in an e-mailed note. “Overall the reactions of the market are fairly intense to small Fed nuances, an indication of some fundamental instability or great uncertainty in the market.”

Bets that the greenback would gain against the Aussie reached a record high last week, as Australia’s currency dipped to a nearly three-year low of 90.37 U.S. cents.

The difference in the number of wagers by hedge funds and other large speculators on a rise compared with those on a decline -- so-called net longs -- was a record 70,515 on July 2, figures from the Washington-based Commodity Futures Trading Commission show.

Worst Performer

Australia’s currency has tumbled 9.9 percent in the past three months, the worst performer among 10 developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 4 percent, while New Zealand’s currency has fallen 5.3 percent.

Commonwealth Bank of Australia lowered its forecasts for the Aussie, according to an e-mailed note, citing fresh forward policy guidance from the Fed that reinforces a divergence in U.S. and Australian interest-rate trajectories. CBA now sees the Aussie at 92 U.S. cents at the end of this year and 85 at the end of 2014, compared to 96 and 91 previously.

Australian hiring increased by 10,300 jobs in June, compared with the median economist estimate in a Bloomberg News survey of no change. Hiring in May was revised to a decline of 700 workers, from an initially reported 1,100 gain. The jobless rate rose to 5.7 percent, the highest since September 2009, as the participation rate gained to 65.3 percent.

Rate Bets

“Because the unemployment rate gets buffeted around by the participation rate, the market generally -- rightly or wrongly - - looks first at job creation,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The Aussie’s had a strong day on U.S. dollar weakness and the net change in interest-rate pricing wasn’t very much.”

Swaps data compiled by Bloomberg show traders see a 64 percent chance the Reserve Bank of Australia will cut its benchmark rate to an unprecedented 2.5 percent at its next meeting on Aug. 6. The probability was 56 percent yesterday. The key rate already stands at a record low of 2.75 percent.

Traders see about a 19 percent likelihood that New Zealand’s central bank will raise its benchmark rate from a record-low 2.5 percent by its December meeting.

The kiwi dollar was supported after data showed manufacturing expanded in June. The Bank of New Zealand Ltd. and Business NZ Performance of Manufacturing Index was 54.7, marking the ninth-straight month it was at or above the 50 level that divides expansion from contraction.

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