Bloomberg News

Aussie Dollar Rises as U.S. Slowdown Supports Yield Advantage

June 06, 2011

June 6 (Bloomberg) -- The Australian dollar rose, trading at almost a three-week high against the greenback as signs of a slowing U.S. economy supported the yield advantage of the South Pacific nation’s assets.

New Zealand’s currency, nicknamed the kiwi, was within two cents of a record high versus the U.S. dollar after data last week showed U.S. payrolls grew at the slowest pace in eight months and the jobless rate rose to 9.1 percent in May. The Aussie strengthened against most of its 16 major counterparts before the Reserve Bank of Australia meets tomorrow.

“The market is saying bad U.S. data is bad for the U.S. economy and bad for the U.S. dollar,” said Jonathan Cavenagh, a foreign-exchange strategist in Singapore at Westpac Banking Corp., Australia’s second-largest lender. “We continue to see U.S. yields come under pressure, and that’s pushing the interest-rate differential back in Australia’s favor.”

Australia’s dollar advanced 0.2 percent to $1.0735 at 12:19 p.m. in New York, after reaching as high as $1.0768. It closed at $1.0716 June 3, when it touched $1.0775, the highest level since May 11. The Aussie was little changed at 86.07 yen.

New Zealand’s dollar traded at 81.59 U.S. cents, compared with 81.57 cents on June 3. It strengthened to a record high 82.64 U.S. cents on May 31. The kiwi fell 0.2 percent to 65.43 yen, from 65.53.

U.S. Economy

U.S. employment growth declined to 54,000 jobs in May from a revised 232,000 in April, Labor Department data showed on June 3, backing the case for the Federal Reserve to keep interest rates near zero. Yields on benchmark U.S. Treasury 10-year notes were at almost the lowest this year, reaching 2.94 percent last week before trading at 3.03 percent today.

Benchmark interest rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan.

Australia’s central bank is likely to keep interest rates unchanged tomorrow, while raising them in the third quarter, according to two Bloomberg News surveys.

The market “doesn’t want to be too short on the Aussie dollar ahead of tomorrow’s RBA meeting,” Westpac’s Cavenagh said. A short position is a bet a currency will fall.

--With assistance from Catarina Saraiva in New York. Editors: Greg Storey, Dennis Fitzgerald

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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