Aussie Rises to Record on Rate Outlook; Kiwi Falls Versus Yen
April 28, 2011, 2:19 PM EDTBy Masaki Kondo
April 28 (Bloomberg) -- The Australian dollar rallied past $1.09 for the first time since it was floated on speculation the central bank will raise interest rates earlier than the Federal Reserve to contain inflation.
The Aussie appreciated for a third day versus the greenback after Fed Chairman Ben S. Bernanke signaled yesterday that he will maintain record monetary stimulus to spur growth. The New Zealand dollar fell against the yen after Reserve Bank Governor Alan Bollard left rates at a record low and called the currency’s recent advance unwelcome.
“What we’re looking at right now is the Fed most likely being the last major central bank to hike” rates, except the Bank of Japan, said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “With the U.S. dollar just getting sold off, you are just going to see ongoing gains in commodity prices and commodity currencies,” including the Aussie, he said.
The Australian dollar advanced 0.2 percent to $1.0894 at 2:07 p.m. in New York, from $1.0872 yesterday, after climbing to $1.0948, the highest level since the currency began trading freely in 1983. The currency dropped 0.5 percent to 88.83 yen. New Zealand’s dollar slid 1.1 percent to 79.92 U.S. cents and dropped 1.8 percent to 65.19 yen.
Bernanke said at his first press conference after a policy decision that the Fed is likely to continue reinvesting its securities holdings after its $600 billion bond-buying program ends in June. The Bank of Japan today left its target lending rate in a range of zero to 0.1 percent.
U.S. Yield Spread
The extra yield offered by Australia’s two-year government notes over similar-maturity U.S. debt expanded to 4.35 percentage points, the widest since Feb. 9.
The Reserve Bank of Australia will increase interest rates by 25 basis points, or 0.25 percentage point, over the next 12 months, according to a Credit Suisse Group AG index based on swaps. The outlook was for a boost of 19 basis points at the end of last week.
Australia’s consumer prices gained 1.6 percent last quarter from the previous three months, the biggest jump since 2006, the Bureau of Statistics said yesterday.
The Aussie also advanced today after the World Bank increased its forecast for China’s economic growth.
China’s economy will expand 9.3 percent this year, higher than the 9 percent forecast published March 21, the World Bank said. China is Australia’s largest trading partner.
New Zealand’s currency snapped a two-day gain versus the yen after Bollard said the economic outlook “remains very uncertain.” Policy makers left the official cash rate unchanged at a record low 2.50 percent.
“Despite the New Zealand dollar coming off on the back of what the governor has said, the wider forces are at work,” ANZ’s Goh said. The strong Aussie and the weak U.S. currency “are a bigger driver of the New Zealand dollar,” Goh said.
--With assistance from Garfield Reynolds in Sydney. Editor: Dennis Fitzgerald
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
