Bloomberg News

Aussie Dollar Touches Two-Week High on Fed Stimulus Bets

July 18, 2012

Australia’s currency touched an almost two-week high against the dollar amid speculation the Federal Reserve will take additional steps to boost growth.

Fed Chairman Ben S. Bernanke, who will testify before Congress for a second day today, reiterated yesterday that the U.S. central bank is prepared to act to stimulate the economy. The Australian dollar held a three-day advance after the country’s leading economic indicator rose to the highest level since August. Demand for New Zealand’s currency was limited after Fonterra Cooperative Group Ltd. said whole-milk prices fell for a second-straight auction.

“The market continues to speculate on the chances of QE3,” said Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd., referring to a potential third round of asset purchases by the Fed, also known as quantitative easing. The bias for the Australian and New Zealand dollars “is higher in the short term,” he said.

Australia’s dollar touched $1.0326, the strongest since July 5, before trading at $1.0308 as of 3:11 p.m. in Sydney. The so-called Aussie climbed 0.7 percent to $1.0316 yesterday. New Zealand’s dollar slid 0.2 percent to 79.67 U.S. cents, following a 1.1 percent advance over the past three days.

Responding to questions yesterday from the Senate Banking Committee in Washington, Bernanke said possible Fed stimulus measures could include further purchases of assets, such as mortgage-backed securities, reducing the interest rate paid on reserves kept with the Fed, and altering the central bank’s communications on the outlook for interest rates. He is scheduled to testify before a House of Representatives committee today.

Australian Growth

An Australian index of leading economic indicators rose to the highest level since August, according to a report today from Westpac Banking Corp. (WBC) and the Melbourne Institute. The index, a gauge of future economic growth, advanced 0.8 percent in May from a month earlier to 282.5.

“Growth in the second half of 2012 and into 2013 will adopt an improving tempo,” Bill Evans, Westpac’s chief economist, said in a statement today. “The current disposition of the monetary authorities appears to be to sit tight for the next few months in the wake of the surprising strong surge in growth in the first quarter.”

Westpac yesterday pushed back the timing of its forecast for the next Reserve Bank of Australia rate cut to the fourth quarter from a previous prediction of August. Interest-rate swaps indicate a 56 percent chance the RBA will lower its interest rate by 25 basis points at its next meeting on Aug. 7, according to data compiled by Bloomberg. That compares with an 81 percent chance indicated on July 13.

Milk Powder

Australia’s government bonds declined, pushing the yield on the 10-year note up by two basis points, or 0.02 percentage point, to 2.95 percent.

A decline in milk-powder prices weighed on New Zealand’s currency. Milk powder for September delivery fell 6.4 percent after dropping a similar amount in the previous auction, according to a trade-weighted index on Fonterra’s GlobalDairyTrade website. The near-term contract declined to $2,538 a metric ton, the lowest since $2,488 on May 15, according to Auckland-based Fonterra, which accounts for about 40 percent of the global trade in dairy products.

“The milk-price auction was a little disappointing, especially given the context of surging prices in soft commodities,” said Bank of New Zealand’s Jones. “It’s taken some of the gloss off” the New Zealand dollar.

The S&P GSCI Agriculture Index has advanced 16 percent this year.

To contact the reporters 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


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