Aussie Near 3-Week Low Versus Kiwi as Monetary Policies Diverge

Australia’s dollar held near the lowest in more than three weeks against its New Zealand counterpart on speculation the monetary policies of the two nations will diverge before the Reserve Bank of Australia releases next week minutes of its last meeting.

The kiwi dollar was poised for weekly gains against 14 of its 16 major peers after the Reserve Bank of New Zealand signaled yesterday policy makers may raise rates in 2014 and data today showed the manufacturing industry expanded. Australian bonds fell as U.S. Treasury yields rose on bets the Federal Reserve will reduce its asset purchases next week.

“The Aussie-kiwi will, in general, remain under some downward pressure,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. “The divergence between the RBA and the RBNZ remains clear and that’s keeping the interest-rate differential between Australia and New Zealand skewed in kiwi’s favor. We think there’s a high risk that the RBA does reinsert its easing bias in the minutes.”

The Aussie was little changed at NZ$1.1397 as of 4:45 p.m. in Sydney from yesterday, when it touched NZ$1.1338, the lowest since Aug. 20. It’s poised for a 0.7 percent drop this week. Australia’s currency declined 0.4 percent to 92.39 U.S. cents from yesterday, when it reached 93.54 cents, the strongest since June 19. It slid 0.1 percent to 92.18 yen and is set for a 1.3 percent weekly gain.

New Zealand’s dollar fell 0.4 percent to 81.09 cents from yesterday, when it reached 81.58, the highest since Aug. 19. The kiwi has gained 1.4 percent against the greenback this week and jumped 2 percent versus its Japanese peer to 80.93 yen.

Bonds Drop

Australian government bonds fell, with the yield on 10-year note rising five basis points, or 0.05 percentage point, to 4.09 percent. The yield on similar-maturity U.S. Treasuries added two basis points to 2.93 percent.

The RBA on Sept. 17 will release minutes of its meeting on Sept. 3, when the central bank kept the benchmark interest rate on hold at a record-low 2.5 percent and omitted a reference to scope for further stimulus.

Interest-rate swaps data compiled by Bloomberg show traders see a 37 percent chance Governor Glenn Stevens and his policy board will reduce rates by the end of the year.

New Zealand’s central bank yesterday forecast that bank bill rates will be higher than previously estimated in the first half of 2014, indicating the RBNZ may raise benchmark borrowing costs within that period.

Swap Rate

New Zealand’s two-year swap rate, a fixed payment made to receive a floating rate, rose five basis points to 3.57 percent, after reaching about 3.58 percent, the highest since August 2011.

“Investors were quick to reconcile RBNZ forecasts pricing a 0.5 percent hike before mid-2014,” Adam Myers, the head of foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London, wrote in a research note today. “This forecast acknowledgment should continue to push short-rate spreads wider today lifting NZD against both USD and AUD.”

The kiwi dollar may face resistance at 81.63 U.S. cents, the Aug. 19 high, wrote Myers, referring to a level where sell orders may be clustered. “We warn all but the shortest-term investors against adding to long positions ahead of a convincing move higher beyond this psychological level.”

The nation’s Performance of Manufacturing Index fell to 57.5 in August from 59.5 in July, which was the highest since June 2004, Business New Zealand and the Bank of New Zealand Ltd. said in a statement released in Wellington today. A reading above 50 indicates expansion.

In the U.S., the Fed is forecast to slow its monthly buying to $75 billion from the current $85 billion pace at its Sept. 17-18 meeting, the median estimate of economists surveyed by Bloomberg News showed on Sept. 6.

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