Aussie Set for Biggest Weekly Gain Since March Before Inflation

The Australian dollar is set to complete its first weekly gain since mid-June before an inflation report next week that is likely to influence the Reserve Bank’s interest-rate decision in August.

Australia’s long-term bond yields fell this week after Federal Reserve Chairman Ben S. Bernanke signaled no imminent exit from monetary stimulus in the U.S. New Zealand’s currency is poised for back-to-back weekly gains after Chinese Premier Li Keqiang said his nation will seek to keep economic growth within limits and to avoid “wide fluctuations”. Both South Pacific nations currencies weakened against the yen before upper-house elections of Japan’s parliament on July 21.

“The fears around tapering and the Chinese growth story have both settled down to provide the Aussie with a bit of a platform,” said Darryl Conroy, an analyst at Suncorp Bank in Brisbane. If Australia’s inflation data “comes out particularly weak, the chances of a rate cut increase pretty dramatically, and if it’s a benign figure, the RBA can sit back and wait a little longer.”

The Australian currency slipped 0.1 percent to 91.64 U.S. cents as of 4:43 p.m. in Sydney, headed for a 1.3 percent advance that would be the biggest five-day gain since the period ended March 15. It fell 0.4 percent to 91.69 yen, paring to 2.1 percent its advance since July 12. New Zealand’s dollar rose 0.1 percent to 79.05 U.S. cents and is up 1.7 percent this week. It slipped 0.3 percent to 79.10 yen today.

Australia’s consumer price index probably gained 0.5 percent in the second quarter from a 0.4 percent pace in the previous three-month period, economists forecast in a Bloomberg News survey before the July 24 data. The trimmed mean gauge of core prices climbed 0.5 percent compared with 0.3 percent in the previous quarter, the poll showed.

China Growth

There is a 68 percent chance that the RBA will cut its benchmark interest rate to a fresh record low of 2.5 percent on Aug. 6, according to Bloomberg News calculations using swaps.

Australia’s benchmark 10-year bond yield fell seven basis points since July 12 to 3.67 percent.

The Aussie may advance toward 92.5 cents over the next month and volatility in the currency will probably increase as the inflation release approaches, Conroy said.

China will seek to keep economic growth, employment and inflation within limits, the nation’s premier said at a forum of advisers and executives, according to a summary of the event published this week. Gross domestic product rose 7.5 percent in the April-to-June period from a year earlier, a July 15 report showed.

The Australian dollar has dropped 10 percent over the past three months, the biggest decline among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. New Zealand’s currency has weakened 4.7 percent, the second-biggest loss.

Immigration, Spending

The kiwi maintained its weekly gain today after a statistics department report showed permanent net migration to the nation climbed to a four-year high in June. Permanent arrivals exceeded departures by 2,330 in June, the most since May 2009, the data showed. Credit card spending rose 2.6 percent in June, the biggest increase in four months, according to separate data released today.

“The problem in the housing sector is already accelerating, via a clear uptrend in credit, consents and house prices,” and the increased migration may add to this, Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities, wrote in a research note. “We are already of the view that the RBNZ ‘should’ lift the cash rate by year-end due to these mounting housing pressures.”

The Reserve Bank of New Zealand will keep its key rate unchanged at 2.5 percent at its July 25 meeting, economists polled by Bloomberg predict. The central bank’s efforts to contain housing pressures through the use of lending restrictions will delay the first rate increase to March 2014, Beacher wrote.

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