Australian Bonds Decline Before RBA Statement; Currency Weakens

Australia’s bonds and currency declined before the Reserve Bank releases its quarterly statement on policy this week after signaling at a meeting yesterday that borrowing costs will remain steady.

The Aussie rose by the most in eight months yesterday after RBA Governor Glenn Stevens said “the most prudent course is likely to be a period of stability in interest rates,” and kept the overnight cash rate at 2.5 percent. New Zealand’s dollar weakened against the greenback.

“The statement on monetary policy is likely to see the RBA upgrade its assessment on inflation and that should provide some underpinning support for the Aussie,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “Yesterday’s statement made it very clear that they have shifted to a neutral bias and rates will remain where they are for some time.”

Australia’s 10-year bond yield rose three basis points, or 0.03 percentage point, to 4.02 percent as of 5:31 p.m. in Sydney from yesterday. An A$800 million ($712 million) sale of 6.25 percent April 2025 notes today drew bids worth 5.06 times the amount on offer, the highest since November. The three-year rate added two basis points to 2.90 percent.

The Australian dollar slid 0.4 percent to 88.93 U.S. cents from yesterday, when it jumped 2 percent, the most since June 3. The Aussie declined 0.6 percent to 90.21 yen from the close in New York, when it surged 2.7 percent, the biggest gain since April 4. The currency was little changed at NZ$1.0835 from yesterday, when it touched NZ$1.0948, the highest since Dec. 12.

New Zealand’s dollar fell 0.5 percent to 82.06 U.S. cents from yesterday, when it rallied 2 percent after dropping to as low as 80.52, the weakest since Sept. 11. It weakened 0.7 percent to 83.24 yen.

Inflation Outlook

Inflation in Australia accelerated in the final three months of last year to above the midpoint of the central bank’s 2 percent to 3 percent target range. The RBA is due to release its updated inflation and growth forecasts in its quarterly statement on monetary policy on Feb. 7.

“Monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target,” Governor Stevens said in the statement yesterday.

Interest-rate swaps data compiled by Bloomberg show traders see a 6 percent chance the central bank will lower its benchmark from 2.5 percent next month.

N.Z. Jobs

The declines by the kiwi were tempered after an official report showed that businesses in New Zealand hired workers at almost double the pace economists forecast in the three months through December, adding to the case for an interest-rate increase as early as next month. Employment grew 1.1 percent from the third quarter, Statistics New Zealand said.

“Today’s employment report was pretty strong,” said ANZ’s Goh. Given the big move the kiwi had yesterday, “further gains might be a bit tough in the near term, because we’ll likely see some profit taking coming in.”

The Reserve Bank of New Zealand, which refrained from raising rates last month, next meets on March 13. Governor Graeme Wheeler said that the central bank may start increasing borrowing costs from a record low 2.5 percent “soon” as domestic demand picks up and inflation accelerates.

New Zealand’s two-year swap rate, a fixed payment made to receive a floating rate, slid two basis points to 3.84 percent.

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