Bloomberg News

Australian Bonds Fall, Currency Gains on Draghi, Stocks

July 27, 2012

Australia’s government bonds declined and the local currency rose for a third day against the dollar and the yen as Asian stocks extended a global rally, boosting investor appetite for riskier assets.

The so-called Aussie dollar was poised for a second monthly gain after European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro. ECB council member Ewald Nowotny said this week there were arguments in favor of giving a banking license to the region’s rescue fund, the European Stability Mechanism. Demand for New Zealand’s dollar was limited on signs global growth is slowing.

“The comments from ECB President Draghi echoed those from ECB council member Nowotny earlier this week about granting the ESM a banking license to increase its firepower,” said Gavin Stacey, chief rate strategist at Barclays Plc in Sydney. “You would expect the risk-on to last into the European session. The Australian dollar will benefit over the near term.”

Australia’s government bonds declined, pushing the yield on the 10-year security up by 13 basis points, or 0.13 percentage point, to 2.96 percent as of 3:36 p.m. in Sydney. The benchmark yield earlier touched 2.98 percent, the highest since July 12. The three-year rate rose as much as 17 basis points to 2.42 percent, the highest since July 6.

The Australian dollar climbed 0.2 percent to $1.0419 from $1.0397 yesterday, when it jumped 0.9 percent. It’s headed for a 1.8 percent gain this month against its U.S. counterpart. The currency rose to 81.51 yen, up 0.2 percent from yesterday, when it advanced 0.9 percent.

New Zealand’s dollar, nicknamed the kiwi, was little changed at 80.24 U.S. cents from 80.19 yesterday, when it advanced 1.6 percent. It fetched 62.77 yen from 62.72.

The MSCI Asia Pacific Index of stocks rose 1.7 percent, following a 2.2 percent advance in the MSCI World Index yesterday.

New Tools

The ECB chief’s pledge spurred speculation policy makers may be preparing to unveil new measures to fight Europe’s debt crisis as potential bailouts for economies the size of Spain and Italy threaten to overwhelm rescue funds. Draghi spoke yesterday at the Global Investment Conference in London, saying surging sovereign-bond yields may fall within the ECB’s jurisdiction.

Spanish 10-year yields reached a euro-era record of 7.75 percent this week, exceeding the 7 percent level that prompted bailouts for Greece, Portugal and Ireland. Yields on the Spanish 10-year bonds declined to 6.93 percent yesterday.

The Australian dollar has strengthened 2.9 percent in the past month, the best performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi has strengthened 0.7 percent over the same period.

Crisis Continues

“If the ECB does not follow up with measures that are convincing to the markets, then concerns would be that the crisis will still continue,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The global economy is looking softer. The risk is still to the downside for the Aussie and kiwi.”

The jobless rate in the euro area probably rose to 11.2 percent in June from 11.1 percent in May, economists in a Bloomberg News poll predicted before the figures are released on July 31. That would be the highest on record. U.S. gross domestic product probably expanded at an annualized 1.4 percent in the second quarter, the slowest pace in a year, according to a separate survey before the Commerce Department publishes data 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


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