Bloomberg News

Aussie Dollar Near Four-Month High; Bond Yields Rise

August 06, 2012

Australia’s dollar traded 0.1 percent from the highest in more than four months and government bond yields climbed on bets the Reserve Bank will refrain from lowering the developed world’s highest interest rate tomorrow.

New Zealand’s currency was 0.2 percent from a three-month high as Asian stocks extended a global rally in equities, spurring appetite for higher-yielding assets. Demand for the South Pacific nations’ dollars was tempered before reports tomorrow that may show declines in Italian industrial production and German factory orders, fueling concern Europe’s debt crisis is curbing prospects for growth.

“Our rates are not moving lower, so that’s always seen as a positive for the currency,” Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney, said in reference to the Aussie. “The Australian dollar is perceived as a pocket of risk. It was risk-on over the weekend and that’s likely to flow through today.”

Australia’s dollar was at $1.0565 as of 4:51 p.m. in Sydney from $1.0569 last week, when it reached $1.0580, the strongest since March 20. It earlier touched 83.17 yen, the highest since May 2, before trading at 82.86.

The South Pacific nation’s 10-year yield rose 14 basis points, or 0.14 percentage point, to 3.26 percent and touched 3.3 percent, the highest since May 14. The rate for the 15-year note climbed as much as 19 basis points to 3.55 percent and closed above the cash rate for the first time since May 4.

New Zealand’s dollar was at 81.82 U.S. cents from 81.89 on Aug. 3, when it touched 81.99, the highest level since April 30. The so-called kiwi was at 64.17 yen from 64.25 last week.

RBA Bets

Interest-rate swaps data indicate traders see an 84 percent chance RBA policy makers will hold the overnight cash-rate target unchanged tomorrow for a second straight meeting. Of the 27 economists surveyed by Bloomberg News, 26 predict no change while one forecast a reduction to 3.25 percent.

Australia has the highest benchmark borrowing costs among major developed economies. Policy rates in New Zealand, Norway, Sweden, Canada and the euro region range from 0.75 percent to 2.5 percent. Rates in Japan and the U.S. are as low as zero.

The MSCI Asia Pacific Index of stocks advanced 1.8 percent. The Standard & Poor’s 500 Index (SPX) rallied 1.9 percent on Aug. 3. The Stoxx Europe 600 Index rose 2.4 percent.

European Economy

The Aussie and kiwi slid versus most of their 16 major counterparts amid concern the 17-nation euro region economy is weakening as leaders struggle to find a resolution to the fiscal crisis.

Figures from Italy’s statistics office due tomorrow may show output dropped 1 percent in June after a 0.8 percent gain in the previous month, according to the median estimate in a Bloomberg News survey. Factory orders in Germany may have fallen 0.8 percent in the same period, after rising 0.6 percent in May, a separate poll showed before tomorrow’s report.

European Central Bank President Mario Draghi signaled last week the central bank may purchase bonds from the region. Details of the plan will be fleshed out in coming weeks, he said.

“The market is still seemingly hoping for fresh stimulus out of the ECB,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. (WBC) in Singapore. “The Aussie’s looking a little rich up above the $1.05 level, particularly given that commodity prices are just not bouncing because of concerns around the global economy.”

Oil and copper prices lost 0.2 percent.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net

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


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