Australian Dollar Gains Versus Peers as Fed Taper Bets Trimmed

The Australian dollar rose versus most of its 16 major peers as expectations of a looming reduction in Federal Reserve bond purchases were damped, buoying demand for higher-yielding assets.

The Aussie climbed against the U.S. dollar following a comment by Group of 20 nations that they will pursue “carefully calibrated and clearly communicated” policy moves and after officials in China, Australia’s biggest trading partner, moved to scrap a rule that had constrained lending by its banks. New Zealand’s currency remained higher after a weekly advance as Asian stocks gained.

“Anything over 93 cents for the Aussie and you’ve got to start accumulating shorts,” Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia, said in reference to bets on an asset’s decline. “The timing for Fed tapering might fluctuate, but the endpoint’s still the same.”

The Australian dollar gained 0.3 percent to 91.99 U.S. cents as of 6:13 p.m. in Sydney, after climbing 1.4 percent last week. It slipped 0.3 percent to 92.01 yen. New Zealand’s currency was little changed at 79.18 U.S. cents, following a 1.8 percent advance in the five days ended July 19, the most since the period through June 14. It lost 0.6 percent to 79.18 yen.

The MSCI Asia Pacific Index of shares gained 0.5 percent.

Australia’s 10-year yield fell two basis points, or 0.02 percentage point, to 3.65 percent after earlier touching 3.63 percent, the lowest since June 20. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates that is sensitive to interest-rate expectations, dropped six basis points to 3.155 percent, the lowest close since June 19.

‘Too Early’

Pacific Investment Management Co.’s Bill Gross said he expects the Fed won’t tighten policy until 2016 at the earliest, after Fed Chairman Ben S. Bernanke said last week it’s “too early” to decide whether to begin tapering the U.S. central bank’s purchases of $85 billion of bonds a month in September.

The G-20 nations said they will move “more rapidly” toward market-determined exchange-rate systems, according to a July 20 statement after a meeting of finance chiefs in Moscow. The statement came after the People’s Bank of China said on July 19 it ended a floor on borrowing costs previously set at 30 percent below the benchmark.

The G-20’s comments “seemed to have settled markets down,” said Hans Kunnen, senior economist at St. George Bank Ltd. in Sydney. “I’m more surprised when the Aussie goes up than when it goes down, because I think some of the supports that have been there for the last six months to a year are starting to be eroded.”

Second Worst

The Australian dollar has lost 8.3 percent this year, the biggest decline after the yen among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Its New Zealand counterpart has weakened 0.1 percent.

A July 24 report may show Australia’s trimmed mean gauge of core consumer prices gained 2.1 percent in the second quarter from a year earlier, after rising 2.2 percent in the previous period, according to the median forecast of economists surveyed by Bloomberg News. Inflation as measured by the consumer price index may have accelerated 2.5 percent over the same period.

“The inflation outlook, although slightly higher because of the exchange rate depreciation, could still provide some scope for further easing, should that be required to support demand,” the Reserve Bank of Australia said last week in minutes of its July 2 meeting.

Downside Surprise

“In the coming week, I think Aussie-kiwi is the cross to look at,” David Forrester, a Singapore-based senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd., said in a Bloomberg Television interview. “We like being short ahead of the Australian CPI release. We think that number could surprise a little bit to the downside and cement a rate cut when it comes to August.”

Traders see a 75 percent chance RBA policy makers will lower the central bank’s benchmark rate by 25 basis points to 2.5 percent at their next meeting on Aug. 6, according to interest-rate swaps data compiled by Bloomberg. Reserve Bank of New Zealand Governor Graeme Wheeler, who is due to announce a policy decision on July 25, will keep his country’s borrowing costs at a record-low 2.5 percent, the data show.

The Australian dollar climbed 0.4 percent to NZ$1.1620 after touching NZ$1.1542 on July 19, the lowest since November 2008.

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