The Australian and New Zealand dollars climbed, reversing earlier declines, after European leaders announced measures to support funding for Spain, boosting demand for higher-yielding assets.
The so-called Aussie rose versus all of its 16 major counterparts after European Union President Herman Van Rompuy said euro-area leaders agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status. Officials also decided to relax conditions on potential aid for Italy. New Zealand’s currency rallied as Asian stocks headed for the biggest gain this year.
“Anything that looks to be supportive of Spain and Italy in raising funds is going to be positive,” said Sacha Tihanyi, a strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. (BNS) “As long as these headlines continue to come out with this sort of flavor, we can see the Aussie and kiwi get squeezed a bit higher.”
The Australian dollar gained 1.5 percent to $1.0197 as of 4:07 p.m. in Sydney. It climbed 1.4 percent to 80.96 yen. New Zealand’s currency, known as the kiwi, rose 1.2 percent to 79.81 U.S. cents and gained 1.2 percent to 63.36 yen.
Australia’s 10-year government bond yield increased 11 basis points, or 0.11 percentage point, to 3.09 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, climbed seven basis points to 2.74 percent.
The MSCI Asia Pacific Index (MXAP) of shares added 2 percent, set for the biggest gain since Dec. 21.
Finance ministers from the 17-nation euro bloc will enact today’s deal at a meeting on July 9, Van Rompuy said, calling the accord a “breakthrough.”
The Australian dollar is set for a 4.7 percent advance against the greenback this month, paring its decline this year to 0.2 percent. New Zealand’s currency has strengthened 5.9 percent since May 31, the biggest gainer after the Mexican peso among the greenback’s 16 major counterparts. It has gained 2.7 percent this year.
The kiwi weakened earlier versus the dollar and yen after government data showed New Zealand home-building permits fell 7.1 percent last month following a revised 7.6 percent decline in April, completing the first consecutive slide since March 2011.
The Aussie was poised for its biggest monthly advance since October against its U.S. counterpart amid speculation the Reserve Bank of Australia will refrain from lowering borrowing costs at a meeting on July 3.
Officials will probably keep the overnight cash rate target at 3.5 percent, according to all economists in a Bloomberg News survey.
Interest-rate swaps data compiled by Bloomberg show traders see about a 68 percent chance for no change to the central bank’s key rate. That’s up from a 33 percent probability seen on June 22. They expect the RBA to cut the rate to a record 2.75 percent or lower by December, the data show.
“The market has taken a view that a move from the RBA in July seems a lot less likely now,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. (WBC) “Expectations for a rate cut have been pared back, and that certainly helps the currency trade more resiliently.”
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