Aussie, Kiwi Hold Gains as Bernanke, Yellen Hint at Later Taper

Australia’s dollar remained higher as Federal Reserve Chairman Ben Bernanke said the U.S. central bank is missing its mandates, backing speculation it will maintain stimulus that’s boosted asset prices across the globe.

The Aussie rebounded yesterday from an eight-week low against the greenback before Fed chairman nominee Janet Yellen testifies at her nomination hearing today. The currency’s implied volatility extended its biggest decline in 10 weeks, and Australia’s 10-year bond yields posted their steepest drop in three weeks. New Zealand’s dollar held a rally from an eight-week low.

“Bernanke said the Fed is missing on its jobs and inflation mandates, so if that’s why quantitative easing was there in the first place, what reason have they got to wind it back?” said Derek Mumford, a director at Rochford Capital, a currency risk-management company in Sydney. “The Aussie dollar and the kiwi dollar will naturally benefit quite heavily from that kind of situation.”

Australia’s dollar was at 93.51 U.S. cents as of 4:40 p.m. in Sydney from 93.60 yesterday, when it added 0.6 percent. The New Zealand dollar rose 0.1 percent to 82.96 U.S. cents, after touching 83.58, the highest in a week. It jumped 0.8 percent yesterday.

One-month implied volatility in the Aussie versus the greenback fell eight basis points, or 0.08 percentage point, to 8.94 percent, extending yesterday’s drop of 91 basis points. Australian 10-year government bond yields declined seven basis points to 4.2 percent, after touching 4.3 percent yesterday, the most since March 2012.

Bernanke, Yellen

“We need a stronger, more rapidly moving economy,” Bernanke said in response to a question at a town-hall meeting with teachers late yesterday in Washington.

In three pages of prepared remarks, Yellen said unemployment is “still too high, reflecting a labor market and economy performing far short of their potential.”

The Fed will pare its bond-buying program to $70 billion at its March 18-19 meeting from the current pace of $85 billion, according to the median of 32 economist estimates in a Bloomberg News survey on Nov. 8.

“We don’t think tapering is going to happen until the first quarter, whereas expectations have kind of drifted more towards January,” said Michael Turner, a debt and currency strategist at Royal Bank of Canada in Sydney. “We suspect Aussie is going to go higher.”

The Australian dollar will finish the year at 93 U.S. cents, while the kiwi will end at 83 U.S. cents, according to median estimates of analysts compiled by Bloomberg.

The Aussie has fallen 6.7 percent in the past six months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi has gained 0.6 percent in that period.

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