Aussie Joins Kiwi in Rally Big Enough to Make Central Banks Weep

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The Australian and New Zealand dollars strengthened for a third day, defying efforts by policy makers to keep the currencies down.

The Aussie touched a four-month high and the kiwi was the strongest in a week as disappointing U.S. retail-sales data fueled speculation the Federal Reserve will push back a decision to raise interest rates. Reserve Bank of Australia chief Glenn Stevens and his New Zealand counterpart Graeme Wheeler have been calling for further weakness in their currencies to boost the nations’ economies as growth slows in China, their biggest trading partner.

Stevens and Wheeler “must be crying into their cornflakes this morning,” Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a report. “We still think FX intervention prospects –- from the RBA in particular -– are very low, but that unless and until the U.S. dollar perks up alongside better data, there is little prospect of a meaningful near-term reversal in AUD or NZD.”

Australia’s dollar gained 0.2 percent to 81.27 U.S. cents as of 6:45 a.m. in London, after earlier touching 81.64 cents, the highest since Jan. 21. The currency’s 2.8 percent rally in the previous two days has helped make it the best-performing Group-of-10 currency this month.

New Zealand’s dollar jumped as much as 1 percent versus the greenback after government data showed retail sales grew last quarter at a faster pace than projected by any of the economists surveyed. The currency was at 75.34 U.S. cents, compared with 74.84 cents on Wednesday, when it jumped 1.6 percent. The kiwi climbed at least 0.4 percent on Thursday against all Group-of-10 currencies.

‘Positive Surprise’

“What drove kiwi higher overnight was the weaker U.S. dollar,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “What’s driving kiwi higher now is the positive surprise in the retail sales.”

Wheeler said on Wednesday the Reserve Bank of New Zealand would “like to see more movement downwards in the exchange rate.” His Australian counterpart, Stevens, labeled further depreciation of the local dollar as both “likely and necessary” on May 5, when the Reserve Bank cut the key rate to a record 2 percent.

Money-market traders have reduced bets for further easing in Australia after the Reserve Bank refrained from saying whether it would keep cutting interest rates following last week’s policy meeting. The implied yield on December interbank cash-rate futures was at 1.87 percent on Thursday, from a low of 1.60 percent on April 2.

RBA ‘Jawboning’

“There will certainly be more jawboning from the RBA to stop the Aussie going up too far too fast and the RBNZ will look to talk the kiwi down,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “At the end of the day, they will have to back up their rhetoric with action and the only thing they can do is to cut rates.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major trading partners, was little changed at 1,153.03 from Wednesday, when it had its biggest drop since March 23.

A report Wednesday showed U.S. retail sales were little changed in April, confounding projections for a small increase.

“There’s no way to put lipstick on a pig really, it was disappointing,” said Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York. “Whatever bounce-back we see I think is going to underwhelm, ergo I think more dollar weakness is the order of the day.”