Bloomberg News

Aussie, Kiwi Climb as Obama Announces U.S. Debt-Limit Agreement

August 01, 2011

Aug. 1 (Bloomberg) -- The Australian and New Zealand dollars advanced as President Barack Obama announced that party leaders had reached an agreement to raise the U.S. debt ceiling, spurring demand for higher-yielding assets.

The so-called kiwi reached a record against the dollar after Obama said at the White House that heads of the Democratic and Republican “parties in both chambers have reached an agreement that will reduce the deficit and avoid default.” The Aussie was set for its biggest gain versus the yen since May as Asian stocks rallied, improving the global outlook for equities.

“It’s good news for risk,” said Roland Randall, a senior strategist at TD Securities Inc. in Singapore. “It’s safe to assume that we’re going to see a risk rally. We’re likely to see some gains in Aussie and kiwi on the back of this.”

Australia’s dollar rose to $1.1051 as of 2:14 p.m. in Sydney from $1.0993 in New York on July 29, halting a two-day decline. It jumped 1.5 percent to 86.63 yen, set for the biggest one-day gain since May 17.

New Zealand’s dollar touched 88.44 U.S. cents, the most since it was freely floated in 1985, before trading at 88.20 cents from 87.93 cents. It gained to 68.35 yen from 67.54 yen, after climbing to 68.89 yen, the highest level since May 2010.

Yields on New Zealand’s 10-year debt touched 4.91 percent, their lowest since March 2009, before moving to 4.94 percent. Australia’s 10-year yield rose to 4.88 percent from 4.80 percent, the lowest level since August 2010.

The MSCI Asia-Pacific Index of regional shares climbed 1.7 percent. Standard & Poor’s 500 Index futures expiring in September rallied 1.5 percent.

Above-Target Inflation

Australia’s currency maintained gains after a report showed annual inflation accelerated beyond the Reserve Bank of Australia’s target, prompting speculation policy makers will raise the benchmark rate.

Consumer prices gained 3.2 percent in the year through July after a 2.9 percent advance in June, according to an index compiled by TD Securities and the Melbourne Institute released in Sydney today. The RBA aims to keep inflation in a 2 percent to 3 percent range on average. Prices rose 0.3 percent from a month earlier after no change in June.

“They’ve got to be forward looking,” said Alex Sinton, Auckland-based senior dealer at ANZ National Bank Ltd., which forecasts the RBA will raise borrowing costs by 25 basis points to 5 percent at a meeting tomorrow. “They really don’t have an awful lot of leeway in their inflation mandate. If it’s not this meeting, they might be just getting a little bit behind the eight ball and the RBA is not really known for being behind.”

Swaps traders scaled back wagers on interest-rate cuts and are betting the Reserve Bank of Australia will slash its key rate by 14 basis points over the next 12 months, a Credit Suisse AG index showed today. That compares with a 42-basis-point decrease projected on July 25.

Central bank governor Glenn Stevens will keep the benchmark interest rate unchanged at 4.75 percent for an eighth meeting tomorrow, according to the median estimate of economists in a Bloomberg News survey.

--Editors: Jonathan Annells, Naoto Hosoda

To contact the reporter on this story: Kristine Aquino in Singapore at Kaquino1@bloomberg.net

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


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