Bloomberg News

Aussie Rises From 5-Month Low on Bets Declines Excessive

May 15, 2012

The Australian dollar rallied from an almost five-month low as a technical indicator suggested its recent decline was excessive.

The New Zealand dollar, known as the kiwi, earlier slid to a four-month low amid concern Greece will be forced to leave Europe’s currency union, sapping demand for riskier assets. Australian bonds rallied, sending yields to record lows, after the Reserve Bank released minutes of its latest meeting when it cut its key rate by half a percentage point.

“The Aussie looks to be taking a little breather here,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency- margin company. “The parity level is likely to present major resistance for a while.”

Australia’s dollar rose 0.4 percent to 99.93 U.S. cents as of 4:35 p.m. in Sydney from the close in New York yesterday. It earlier touched 99.45, the lowest since Dec. 20. The currency strengthened 0.4 percent to 79.83 yen. The kiwi added 0.3 percent to 77.86 U.S. cents after falling to 77.52 cents, the weakest since Dec. 30. It gained 0.3 percent to 62.18 yen.

The Australian dollar’s 14-day relative strength index against its U.S. counterpart dipped to 28 yesterday, below the 30 level that some traders see as signaling an asset may reverse direction. A similar gauge versus the yen fell to 26 yesterday.

Greek Political Turmoil

Greek President Karolos Papoulias will attempt to persuade divided party leaders today to accept his proposal for a government of prominent non-politicians to steer the country. The nation may face another election unless leaders can agree on a new coalition. European finance ministers are scheduled to meet for a second day in Brussels.

The MSCI Asia Pacific Index of stocks retreated 0.6 percent. The Standard & Poor’s 500 Index (SPX) of U.S. equities lost 1.1 percent yesterday, while the MSCI World Index of developed- market shares fell 1.5 percent.

“It’s just not at all clear what the endgame is in Europe,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. (WBC) “While the Aussie doesn’t have a huge direct link to Europe compared to some other currencies, the sentiment does spill over into equities and into global risk appetite in general, and that tends to be negative for both the Aussie and kiwi.”

RBA Minutes

The Reserve Bank of Australia cut its overnight cash rate target in a bid to revive below-average growth, counter rising mortgage costs and shore up consumer confidence, minutes of its May 1 meeting showed. The RBA reduced its key rate by the most in three years to 3.75 percent.

“Growth outside of the mining sector was expected to be below trend in the near term, affected by the high exchange rate, softer government spending and subdued conditions in the housing market and building industry,” according to the minutes released today in Sydney. “With financial markets remaining unsettled, the risks emanating from Europe continued to cloud the global outlook.”

Traders are betting the RBA will cut its benchmark rate further, with overnight index swaps indicating at least a 60 percent chance that it will fall to a record low 2.75 percent by November, according to data compiled by Bloomberg.

The release of the minutes “does not contain a smoking gun that would prime the market even more for a follow-up RBA rate cut in June,” David de Garis, a senior economist at National Australia Bank Ltd. (NAB) in Melbourne, wrote in a research note. “Some further net domestic economic softening would be necessary to support the case for easier monetary policy in the September quarter.”

The swaps data indicates that there is an about 85 percent probability that the next cut will occur as soon as June.

Australia’s bonds advanced, pushing the yield on all notes maturing in three years or longer to record lows. The 10-year rate dropped as much as eight basis points to 3.201 percent, while the 15-year yield touched 3.535 percent and the three-year rate fell to 2.535 percent.

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net

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


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