Bloomberg News

Australia, N.Z. Dollars Gain as Central Banks Fuel Demand

April 27, 2012

The Australian and New Zealand dollars rose versus most major peers after the Bank of Japan added more stimulus and investors bet the Federal Reserve won’t be quick to abandon efforts to support the U.S. economy, boosting demand for higher-yielding assets.

The two South Pacific currencies reversed earlier losses as global stocks and commodities rallied.

“The only reason why we’re seeing a bit of an upward move in risk is because the Bank of Japan eased, so more liquidity is funneling into the market,” said Kathy Lien, director of currency research at the online trading firm GFT Forex in New York. “The tremendous amount of liquidity that central banks are providing is the only thing supporting risk.”

Australia’s currency strengthened 0.7 percent to $1.0465 at 3:52 p.m. in New York. It was little changed at 84.12 yen.

The Aussie was headed for a 1.9 percent monthly drop versus the yen, the biggest since November, on speculation the Reserve Bank of Australia will cut interest rates next week.

The kiwi, as New Zealand’s dollar is called, rose 1 percent today to 82.27 U.S. cents and gained 0.2 percent to 66.12 yen.

The MSCI World Index of stocks advanced 0.5 percent, and the Thomson Reuters/Jefferies CRB Index of raw materials gained 0.7 percent.

Bank of Japan

The Bank of Japan increased the total size of its stimulus programs by 5 trillion yen ($62 billion). It’s boosting its asset-purchase fund to 40 trillion yen by June 2013, versus the previous target of 30 trillion yen by year-end, while paring by 5 trillion yen a separate program that provides funds to banks.

Higher-yielding currencies gained today as Commerce Department data showed U.S. gross domestic product expanded in the first quarter at a 2.2 percent annual rate. That followed a 3 percent pace from October through December and compared with the 2.5 percent median forecast in a Bloomberg News survey.

While the Fed refrained this week from new actions to boost the U.S. economy, Chairman Ben S. Bernanke said the central bank is “prepared to do more” if necessary.

RBA policy makers will lower the cash target rate to 4 percent on May 1, from 4.25 percent, according a Bloomberg survey. The central bank this month signaled it may lower rates to bolster the economy, provided inflation remains in check. A report this week showed annual consumer price inflation slowed to 2.2 percent in the first quarter, toward the lower end of the RBA’s 2 percent to 3 percent target range.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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