Aussie Halts Gain Versus Dollar, Near Five-Year Low Against Kiwi

The Aussie dollar halted a three-day gain versus the U.S. currency and declined to within 0.2 percent of a five-year low against New Zealand’s as traders speculated Australia’s economy will require further stimulus.

The kiwi dollar added to this month’s gain versus the Aussie after New Zealand’s government forecast construction will surge over the next few years and before the central bank holds a policy meeting on Dec. 12. Australia’s currency weakened as a Federal Reserve official said the U.S. should taper monetary stimulus at the as soon as possible.

“Fundamentally, the market is still pricing in hikes in New Zealand and cuts in Australia, so clearly the trend is going to be lower on Aussie-kiwi,” said Tim Kelleher, the head of institutional foreign-exchange sales at ASB Bank Ltd. in Auckland. Both countries’ central banks “know that U.S. stimulus tapering is coming sooner rather than later so they would be expecting U.S. dollar strength in the new year.”

The Australian currency fell 0.1 percent to 91.00 U.S. cents as of 5:33 p.m. in Sydney. It was little changed at 93.97 yen and was at NZ$1.0981, near a five-year low of NZ$1.0950 reached yesterday. New Zealand’s currency rose 0.1 percent to 82.87 U.S. cents and 85.56 yen.

The Aussie will drop toward NZ$1.0750 over the next three months, Kelleher said.

Home loan growth in Australia slowed to 1 percent in October following a 3.5 percent gain in September, the statistics bureau said today. Business confidence in the nation fell for a second month in November after surging in August and September on prospects the new government will boost growth, a National Australia Bank Ltd. survey showed.

Business Outcomes

“Business confidence edged back a touch in November, suggesting that firms are continuing to reassess their lofty election related expectations given continuing sub par business outcomes,” NAB chief economist Alan Oster wrote in a report. “Whether current confidence levels can be maintained given weak forward indicators remains a key question.”

Chinese industrial production growth slowed in November to 10 percent year-on-year from 10.3 percent in the previous month, data today showed. Retail sales rose 13.7 percent after October’s 13.3 percent rise, a separate report showed.

There is a 39 percent chance the Reserve Bank of Australia will lower its record-low benchmark rate of 2.5 percent by June, according to swaps data compiled by Bloomberg.

The Federal Open Market Committee will probably begin reducing $85 billion in monthly bond buying at the Dec. 17-18 meeting, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 poll.

“We should get started as soon as possible,” Dallas Fed President Richard Fisher said yesterday, referring to when the bank should begin reducing the pace of bond buying.

Aussie Bonds

Australia’s three-year bond yield rose one basis point, or 0.01 percentage point, to 3.09 percent and the 10-year rate gained to 4.39 percent from 4.37 percent yesterday.

New Zealand’s two-year swap rate, which is sensitive to policy expectations, rose two basis points to 3.74 percent. The Reserve Bank of New Zealand will add 100 basis points to its 2.5 percent cash rate over 12 months, according to a Credit Suisse Group AG index based on swaps. It will keep policy unchanged at this week’s meeting, according to a Bloomberg poll.

Construction in New Zealand will peak at NZ$32 billion ($26.5 billion) in 2016-17, according to a government survey. The level is a 44 percent jump from 2012-13 levels and would be 23 percent higher than the previous construction peak in 2007-08.

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