Bloomberg News

Australian Dollar Strengthens Before Euro Crisis Talks

August 20, 2012

The Australian dollar rose against all of its major counterparts before Europe’s leaders meet this week to discuss measures to stem the region’s debt crisis.

The Aussie strengthened versus the yen on prospects the European Central Bank will try to cap bond yields in the euro area, supporting investor appetite for riskier assets. Gains by the Australian and New Zealand dollars against their U.S. peer were tempered by prospects the Federal Reserve will refrain from further monetary stimulus, which could debase the greenback.

“While the Aussie might still be a little bit pricey at $1.04, I don’t think you want to be aggressive about short positions,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “I think the news out of Europe is getting a little better.”

The Australian dollar rose 0.2 percent to $1.0444 yesterday in New York. New Zealand’s currency gained 0.1 percent to 80.92 U.S. cents.

German Chancellor Angela Merkel and French President Francois Hollande meet in Berlin on Aug. 23 to discuss the debt crisis, and both are set to meet separately with Greece’s Prime Minister Antonis Samaras later in the week. Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, is also scheduled to discuss Greece’s fiscal adjustment program when he visits Athens tomorrow.

The ECB may set limits on yields of euro-area sovereign debt by pledging unlimited bond purchases, Germany’s Spiegel magazine reported Aug. 19, without saying where it obtained the information. The policy will be decided at the September governing council meeting, Spiegel said.

Fed Policy

In the U.S., the Fed’s rate-setting committee will release minutes today of its most recent meeting at which it avoided adding to measures to boost the economy. The central bank, whose next meeting is scheduled for Sept. 12-13, has already purchased $2.3 trillion in assets and pledged to keep its key rate near zero at least through late 2014 to bolster growth.

Australia’s central bank will publish records of its deliberations today. The Reserve Bank of Australia kept its key rate at 3.5 percent on Aug. 7, having reduced the benchmark by 1.25 percentage points since November.

“The rhetoric from the RBA indicates a very high hurdle to moving policy from here,” said John Horner, a Sydney-based currency strategist at Deutsche Bank AG. “They appear quite comfortably on hold and we’d expect this week’s communication to reinforce that.”

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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