Bloomberg News

Aussie Pares Gain as RBA Minutes Show No Rush for Tighter Policy

July 19, 2011

July 19 (Bloomberg) -- Australia’s dollar pared gains against its U.S. counterpart after minutes from the Reserve Bank’s last meeting reduced expectations that policy makers will increase interest rates to combat inflation.

The so-called Aussie failed to offset a three-day decline after the RBA said there was “more time” to assess price pressures. New Zealand dollar’s traded 0.6 percent from its all- time high versus the greenback as TD Securities Inc. said the nation’s central bank may raise rates as early as next week.

“The big thing in the minutes is they dropped the reference to need for tighter policy at some stage,” said Mitul Kotecha, head of global currency strategy at Credit Agricole SA in Hong Kong. “The fact that they have now dropped that reference is obviously playing negatively for the Aussie.”

Australia’s currency was at $1.0633 as of 4:48 p.m. in Sydney from $1.0607 in New York yesterday, trimming earlier gains to $1.0651. New Zealand’s dollar traded at 84.53 U.S. cents from 84.50 cents, close to the 85.07 cent record reached on July 14. The Aussie fetched 84.03 yen from 83.84 yen, while the so-called kiwi was at 66.81 yen from 66.79 yen.

“The flow of recent information suggested both that there was more time to assess the likely strength of inflationary pressures in Australia and that it would be prudent to use that time,” according to the minutes released today of the RBA’s July 5 meeting. Minutes from the June meeting released last month signaled that “tightening in monetary policy would be necessary at some point.”

100% Chance

RBA Governor Glenn Stevens has kept the official cash rate unchanged at 4.75 percent since November as the economy recovered from floods. Cash-rate futures show a 100 percent probability the RBA will lower borrowing costs by December, Sydney Futures Exchange contracts show.

“The RBA is likely to ‘stay its hand’ in terms of tightening near term,” Gavin Stacey, an interest-rate strategist in Sydney at Barclays Capital, and Joaquin Vespignani, an economist at the company, wrote in a note today. “But, in our view, rate hikes rather than rate cuts are on its mind.”

Yields on Australia’s government bonds maturing in three years added one basis point to 4.29 percent after reaching 4.26 percent yesterday, the lowest level since September.

Goldman Sachs Group Inc., which advised clients on June 29 to sell the yen and buy Australia’s dollar, stopped the recommendation.

N.Z. Rates

“The trade idea suffered” because expectations for higher interest rates decreased in Australia and appetite for riskier assets deteriorated, strategists led by Thomas Stolper wrote in a note dated yesterday.

The kiwi was supported on speculation the Reserve Bank of New Zealand will raise rates from a record low of 2.5 percent.

“We are warming to the theme” that there may be a 50 basis-point increase in rates as soon as next week, Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, wrote in a research note today. “At the very least, the bank may prepare the market for such a move at the 15 September Monetary Policy Statement.”

Gross domestic product rose 0.8 percent in the three months ended March 31 from the previous quarter, Statistics New Zealand said on July 14, outpacing the RBNZ’s forecast for an expansion of 0.3 percent.

Demand for the Australian and New Zealand dollars was limited as euro-area leaders prepare to meet in Brussels on July 21 to discuss efforts to end the region’s debt crisis.

“Concern about Europe’s debt problems spurs risk aversion through a drop in stocks,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “We should be bearish” on the Australian and New Zealand currencies for the near term, he said.

The MSCI Asia Pacific Index of regional shares fell for a fourth day, losing 0.4 percent after the Standard & Poor’s 500 Index slid 0.8 percent in New York yesterday.

--Editors: Rocky Swift, Nate Hosoda

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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