Bloomberg News

Aussie Falls as RBA Holds Rate Steady; Kiwi Touches Record High

July 05, 2011

July 5 (Bloomberg) -- The Australian dollar fell against 12 of its 16 most-traded counterparts after the central bank left its key interest rate unchanged and said growth this year is unlikely to match earlier forecasts.

New Zealand’s dollar, nicknamed the kiwi, touched a record high after business confidence rebounded. The Aussie fell for a second day against the U.S. currency as traders added to bets that the Reserve Bank of Australia will lower benchmark rates this year. Two-year bond yields declined.

“The RBA has revised down growth in their forecasts,” said Richard Grace, Sydney-based chief currency strategist and head of international economics at Commonwealth Bank of Australia. “You’d expect local bond yields to adjust a little lower and therefore interest-rate spreads will compress and put some mild dampening pressure on the Australian dollar.”

Australia’s currency depreciated 0.4 percent to $1.0693 at 11:11 a.m. in New York, from $1.0734 yesterday. It slipped less than 0.1 percent to 86.69 yen, from 86.73 yen.

New Zealand’s dollar was little changed at 82.86 U.S. cents, from 82.96 yesterday, after earlier rising to 83.32 cents, the highest since the currency was freely floated in 1985. It rose 0.2 percent to 67.19 yen, from 67.04 yen.

“Growth through 2011 is now unlikely to be as strong as earlier forecast,” RBA Governor Glenn Stevens said in a statement accompanying the bank’s decision. “Over the medium term, overall growth is still likely to be at trend or higher, if the world economy grows as expected.”

Two-Year Note

Yields on the Australian two-year note fell five basis points, or 0.5 percentage point, to 4.70 percent and touched 4.69 percent, the lowest level since June 29.

The kiwi’s high of the day came as a confidence survey raised prospects the central bank will raise interest rates. The New Zealand Institute of Economic Research said a net 27 percent of the 782 companies it surveyed expect the economy to improve in the next six months. In the previous survey, a net 27 percent saw a deterioration.

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, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

--With assistance from Joe Ragazzo in New York. Editors: Greg Storey, Paul Cox

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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