Bloomberg News

Aussie, Kiwi Rebound on Speculation Losses Were Overdone

June 12, 2012

The Australian and New Zealand dollars rallied from an earlier drop amid speculation recent losses were excessive and after a private index showed the smaller South Pacific nation’s home prices climbed last month.

The so-called Aussie and kiwi declined earlier as Asian shares slid on concern Italy will become the next focus of Europe’s debt crisis after Spain requested a bailout for its banks. Italy will sell notes this week and Greeks will vote in a general election on June 17. The Australian and New Zealand dollars advanced against the yen after the International Monetary Fund said the Japanese currency is “overvalued.”

“The Aussie and kiwi currencies got sold off quite hard and we’re seeing some profit-taking at current levels,” said Khoon Goh, a senior foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group Ltd. (ANZ) “Today, the Aussie might pop its head back into 99-99.50 U.S. cents range, but I don’t think that will last. You’ll see a lot of people quite keen to sell around that zone. Everything will depend on how the Greek elections pan out this Sunday.”

The Australian dollar rose 0.3 percent to 98.98 U.S. cents as of 3:29 p.m. in Sydney from yesterday, when it declined 0.5 percent. It advanced 0.4 percent to 78.68 yen, after earlier falling as much as 0.3 percent. New Zealand’s currency gained 0.3 percent to 77.16 U.S. cents. It added 0.4 percent 61.35 yen.

The Aussie dropped 2.7 percent in the past three months, the worst performance among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes, while the kiwi declined 2.4 percent.

The Real Estate Institute of New Zealand Inc.’s index of house prices climbed 1.7 percent in May from the previous month, when it fell 0.3 percent, according to a statement today.

‘Offshore Factors’

The yield on Australia’s 10-year government bond fell seven basis points to 2.99 percent, while rates on three-year notes declined five basis points to 2.28 percent.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 2.61 percent.

The South Pacific nations’ “interest-rate expectations continue to be driven by offshore factors rather than domestic factors,” said Gavin Stacey, the Sydney-based chief rate strategist at Barclays Capital.

Borrowing costs in Spain and Italy jumped yesterday after the Iberian nation asked for as much as 100 billion euros ($125 billion) to save its banking system, making it the fourth member of the currency bloc to seek a rescue.

“There are uncertainties about whether or not the 100 billion euros is enough to shore up the Spanish banks and resolve the problem and whether or not the weakness in Italy is becoming uncontrollable,” Barclays Capital’s Stacey said.

The MSCI Asia Pacific Index (MXAP) of stocks dropped 0.9 percent, paring yesterday’s 1.8 percent gain.

Japan’s currency is “moderately overvalued from a medium- term perspective” and the nation’s central bank should consider further monetary stimulus, the IMF said in a report on Japan’s economy released today.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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

June 12 (Bloomberg) -- Tom Levinson, a currency strategist at ING Bank NV, talks about the outlook for the euro and dollar, and Swiss National Bank and Bank of Japan monetary policy. He speaks with Caroline Hyde on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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