Bloomberg News

Aussie, Kiwi Gain on Prospects Greece to Avoid Euro Exit

May 28, 2012

The Australian and New Zealand dollars advanced, halting four-week slides, as prospects Greece will avoid an exit from the euro bloc boosted demand for higher- yielding assets.

The so-called Aussie touched its highest level in almost a week after Greece’s New Democracy party, which supports the nation’s bailout agreements, led in opinion polls published over the weekend. New Zealand’s currency, known as the kiwi, climbed versus all of its 16 major counterparts as technical indicators signaled its recent decline may have been too rapid. Both the South Pacific nations’ dollars gained as Asian stocks rose, rebounding from a weekly loss.

“We’ve started the week with a risk-relief rally that’s being reflected in kiwi and Aussie,” said Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd. “The risks of a Greek exit seem to have reduced just slightly.”

Australia’s dollar rose 1.1 percent to 98.69 U.S. cents as of 4:17 p.m. in Sydney after earlier touching 98.71, the strongest level since May 22. It dropped 0.9 percent versus the greenback last week. The Aussie gained 0.8 percent to 78.36 yen from 77.76 on May 25.

New Zealand’s currency added 1.2 percent to 76.31 U.S. cents after completing a 0.3 percent slide last week. It advanced 0.9 percent to 60.59 yen.

Australia’s bonds fell, pushing the yield on the 10-year note up by two basis points, or 0.02 percentage point, to 3.19 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was at 2.48 percent from 2.42 percent last week.

Stocks Gain

The MSCI Asia Pacific Index (MXAP) of shares strengthened 0.6 percent after falling 0.8 percent in the five days ended May 25.

In Greece, pro-bailout party New Democracy placed first in all six opinion polls published in the country May 26 as its leader Antonis Samaras said the cost of leaving the 17-nation euro region would be greater than staying in the currency bloc.

New Democracy led by a margin of as much as 5.7 percentage points over Syriza, the main party opposed to implementing the terms of financial aid packages, according to a poll by Kapa Research SA for To Vima newspaper. Greece will hold a second general election on June 17 after balloting on May 6 left parties unable to agree on the formation of a coalition government.

Worst Performers

The Aussie has lost 2.1 percent this year, the second-worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The New Zealand currency has declined 0.4 percent.

The Australian dollar has fallen 5.4 percent versus its U.S. counterpart this month. The kiwi dropped the most among the greenback’s most-traded peers, sliding 6.8 percent.

“The countries that have been experiencing the greatest selling pressure are now bouncing the hardest,” BNZ’s Jones said. “That’s the kiwi and the Aussie.”

The relative strength index for the Australian dollar versus the greenback was at 37.5, surpassing the 30 level for the first time since May 21. The RSI for New Zealand’s currency was at 36.7, also climbing above 30 for the first time since May 7. A reading below 30 signals that a currency may be oversold and poised for a correction.

Traders are betting the Aussie will fall against the U.S. dollar for the first time since 2009.

Net Shorts

Net shorts, or the difference in the number of wagers on a decline compared with those on a gain, for the Australian currency were 16,898 on May 22, compared with net longs of 4,734 a week earlier, according to figures from the Washington-based Commodity Futures Trading Commission.

Net shorts for the New Zealand dollar were at 1,509 from net longs of 2,597 in the week ended May 15, the data show. That was the first time traders bet on the kiwi’s drop since March 2011.

Positioning for the Australian and New Zealand currencies “is a product of the heightened risk-aversion trade,” Emma Lawson, a currency strategist in Sydney at National Australia Bank Ltd. (NAB), wrote in a research note today. “As the market is now short, a period of good news may see a sharp reversal.”

The appeal of the Australian and New Zealand dollars was curbed after a report yesterday showed profits for Chinese industrial companies declined in April, damping the outlook for the South Pacific nations’ exports.

Earnings declined 2.2 percent from a year earlier to 407.6 billion yuan ($64.3 billion), the National Bureau of Statistics said on its website. That compared with a 4.5 percent gain in March.

“There’s no doubt the data in China in the past month or six weeks have been on the softer side and that’s probably partly a flow on of weaker demand out of Europe,” Reserve Bank of Australia Governor Glenn Stevens said today in response to questions at a forum in Sydney. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net


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