Bloomberg News

Australian Dollar Reaches 3-Week High as Retail Sales Advance

February 28, 2012

Australia’s dollar advanced to a three-week high after government data showed retail sales rose in January, adding to speculation the Reserve Bank will keep the highest interest rates among major developed economies.

The so-called Aussie gained versus most of its 16 major peers before the European Central Bank announces the allotment of a second round of unlimited three-year funds today in a bid to shore up the euro region’s banks, increasing the appeal of riskier assets. New Zealand’s dollar, nicknamed the kiwi, climbed to its highest in more than five months against the greenback after home-building approvals jumped last month.

The Australian retail sales figure “bucks the recent trend towards weakness, which I think is a positive,” said Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore. “That has the potential to support interest-rate expectations and that only adds to the attractiveness of the Aussie in a risk-on world.”

Australia’s dollar rose 0.5 percent to $1.0822 at 1:57 p.m. in Sydney after earlier climbing to $1.0823, the strongest since Feb. 9. The Aussie added 0.6 percent to 87.15 yen. New Zealand’s currency advanced 0.7 percent to 84.33 U.S. cents. It earlier reached 84.39, the highest level since Sept. 5. The kiwi strengthened 0.7 percent to 67.91 yen.

Australia’s 10-year (GACGB10) bond yield gained three basis points, or 0.03 percentage point, to 4 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose 1 1/2 basis points to 3.075 percent.

Retail Sales

Australian retail sales climbed 0.3 percent last month from December, when they fell 0.1 percent, the Bureau of Statistics said in Sydney today. The result matched the median forecast in a Bloomberg News survey of economists and is the biggest gain since September.

“A stronger consumer contrasts with the ‘material weakness in domestic demand’ required for another RBA rate cut,” Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore, wrote in an e-mailed note today. “Further reports of strong employment growth and retail sales strength start to tilt the risks toward the RBA remaining on hold at neutral for longer.”

Traders are expecting the central bank to reduce borrowing costs by 50 basis points over the next 12 months, a Credit Suisse AG index based on swaps showed. RBA Governor Glenn Stevens unexpectedly kept the nation’s benchmark interest rate unchanged at 4.25 percent on Feb. 7 after two consecutive quarter percentage-point cuts late last year.

ECB Loans

The Australian dollar halted two days of declines against the yen on speculation financial institutions may ask the ECB for 470 billion euros ($633 billion) in funds in today’s long- term refinancing operation, according to the median estimate in a Bloomberg poll.

“We think the risks are skewed towards a larger take- up,”said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia (CBA), referring to the ECB’s fund allotment. “What’s likely is you get a knee-jerk reaction by euro and that might drag Aussie and kiwi higher as well.”

Demand for the kiwi was supported after New Zealand’s home- building approvals rose 8.3 percent in January after gaining a revised 2.6 percent the previous month, a report showed today. That’s the fastest pace since October.

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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