The Australian dollar strengthened to the highest level in 11 weeks against the greenback as Asian stocks extended a global equity rally, boosting demand for higher-yielding assets.
The so-called Aussie gained for a fifth day before U.S. jobs data that may add to the case for more monetary stimulus from the Federal Reserve. Demand for the Australian and New Zealand dollars was supported as volatility for major currencies slid to the lowest since November 2007, making investments in nations with higher interest rates more attractive.
The Aussie and kiwi “are certainly looking quite strong at the moment,” said Jeremy Jukes, a foreign-exchange dealer in Auckland at Velocity Trade Ltd. “Mild weakness in the U.S. data has been positive for risk assets because there’s going to be more chance of more stimulus.”
Australia’s dollar gained as much as 0.4 percent to $1.0406, the highest level since May 1, before trading at $1.0404 as of 5:08 p.m. in Sydney. New Zealand’s dollar rose 0.2 percent to 80.19 cents from yesterday, when it climbed 0.3 percent. It earlier touched 80.21, the highest since July 6.
The MSCI Asia Pacific Index (MXAP) of stocks rose 1.5 percent following a 0.8 percent advance in the MSCI World Index (MXWO) yesterday.
Applications for first-time jobless benefits in the U.S. probably increased by 15,000 in the week ended July 14 to 365,000, according to median estimate of economists surveyed by Bloomberg News before the Labor Department releases figures today.
The Fed released its Beige Book business survey yesterday, saying the U.S. economy expanded at a “modest to moderate” pace last month as retail sales and manufacturing cooled in some regions. It gives central bankers anecdotal evidence on the economy before they open a two-day policy meeting on July 31.
Implied volatility on three-month options for Group-of- Seven currencies matched yesterday’s low of 8.67 percent, the least since November 2007, according to the JPMorgan G7 Volatility Index. The average over the past five years is 12.4 percent. Three-month implied volatility for the Australian dollar today matched yesterday’s low of 10.05, the least since May 2.
The Aussie’s volatility “has made another local low,” according to a note from National Australia Bank Ltd. (NAB)’s currency strategy team led by Ray Attrill. “This means that ‘volatility adjusted’ attractions of the Australian dollar as a carry trade are enhanced.”
Central bank interest rates in Australia and New Zealand are 3.5 percent and 2.5 percent respectively, versus near zero in the U.S. and Japan.
Australia’s government bonds declined, with the yield on 10-year debt up one basis points, or 0.01 percentage point to 2.94 percent. Sales of A$500 billion ($520 million) of three- month bills drew bids valued at 8.83 times the amount on offer, the highest bid-to-cover ratio since April 2011.
“Markets like Australia, Korea, Canada, Singapore that typically perhaps have been small parts of global portfolios are becoming more important because the core large markets are increasingly looking very poor quality,” Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group Ltd (ANZ), said in a Bloomberg Television interview. Yetsenga expects the Australian dollar to rise to $1.05.
In New Zealand, the number of job advertisements in newspapers and on the Internet declined 1.4 percent in June from the previous month, according to a report from ANZ.
The country’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 2.63 percent.
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