Pimco Says Aussie Rates Lower for Longer as UBS Sees RBA on Hold

Pacific Investment Management Co. said the Aussie dollar’s strength as a consequence of global monetary policies may mean short-term Australian interest rates remain lower for longer. UBS AG sees the central bank holding borrowing costs at a record low through the end of next year.

The local currency at 95.50 U.S. cents “means short-term Aussie interest rates lower for even longer,” Robert Mead, a Sydney-based money manager for Pimco, which runs the world’s largest debt fund, wrote in a Twitter posting today.

The Aussie dollar touched its strongest level in four months as the U.S. Congress voted to end a government shutdown and raise the nation’s debt limit, buoying demand for higher-yielding assets. The currency also gained after minutes of the Reserve Bank of Australia’s October meeting released this week showed officials agreed the monetary authority should “neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.”

Australia’s currency was little changed from yesterday at 95.46 U.S. cents as of 2:50 p.m. in Sydney after earlier rising to 95.69 cents, the highest since June 18. Australia’s three-year government bond yield, among the most sensitive to interest-rate expectations, fell nine basis points to 3.08 percent. It reached 3.21 percent yesterday, a level unseen since April 2012.

The RBA reduced its key rate by 2.25 percentage points over the past two years to an all-time low 2.5 percent. Interest-rate swaps data compiled by Bloomberg show traders see a 75 percent chance officials will keep the benchmark unchanged through to the end of this year. There’s about a 65 percent probability it will remain there through the first quarter of 2014, according to the data.

Easing Over

“For the first time in a few years we think the easing cycle is over,” Matthew Johnson, a Sydney-based interest-rate strategist at UBS, said at a media briefing today. “We don’t think we need the currency to go lower for the RBA to stay on hold.” Australia’s central bank may raise the cash rate in 2015 at the earliest, Johnson said.

Australia’s currency has risen 2 percent in the past month, supported by the Federal Reserve’s decision on Sept. 18 to keep buying $85 billion of bonds a month and a pickup in manufacturing and imports in China, the South Pacific nation’s biggest trading partner.

The Aussie’s decline from a high of $1.0582 on April 11 helped extend its drop this year to 8.2 percent, the most after the yen among the Group of 10 major currencies.

“The Australian dollar appreciated significantly against the U.S. dollar on the day of the Fed decision and had appreciated further over the past month following the release of stronger-than-expected economic data, particularly in China,” minutes of the RBA’s Oct. 1 meeting showed on Oct. 15. “However, members noted that the Australian dollar was still around 10 percent below its peak in April.”