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Australia’s dollar rose versus most major peers on prospects the U.S. Federal Reserve will support growth and Europe is progressing toward a resolution of its debt crisis, boosting demand for higher-yielding assets.
The so-called Aussie gained against its U.S. and Japanese counterparts after Minneapolis Fed President Narayana Kocherlakota said the central bank should hold rates at around zero until unemployment drops below 5.5 percent and the Financial Times said European Union authorities are discussing a new rescue for Spain. Australia’s currency headed for a weekly decline after an International Monetary Fund official said the organization will cut its forecasts for the global economy.
“We’re getting much closer to a formal Spanish bailout and that kind of reduces some of the tail risk associated with the European outlook,” said Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp. (WBC) Kocherlakota’s comments “have clearly helped sentiment as well. That’s definitely going to be supporting the Aussie in the near-term,” he said.
The Australian dollar rose 0.3 percent to $1.0465 at 4:50 p.m. in Sydney. It bought 81.80 yen, 0.2 percent higher than yesterday’s close. Its New Zealand counterpart, nicknamed the kiwi, added 0.1 percent to 82.96 U.S. cents and was little changed at 64.84 yen.
The Aussie has fallen 0.8 percent against its U.S. peer this week. New Zealand’s kiwi dollar has risen 0.1 percent since Sept. 14 after gaining 2 percent in the previous five-day period.
Australia’s 10-year note yield rose six basis points to 3.29 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, added four basis points to 2.73 percent.
As long as inflation doesn’t exceed 2.25 percent, the Fed “should keep the fed funds rate extraordinarily low,” Kocherlakota said yesterday, reversing his view in May that the Fed may need to raise rates this year or next.
The U.S. central bank said this month it will start a third round of asset purchases and pledged to keep its target for overnight loans between banks close to zero until at least the middle of 2015. The announcement came after European Central Bank Mario Draghi said Sept. 6 policy makers agreed to an unlimited bond-purchase program.
Spanish and EU authorities are discussing plans to trigger ECB bond purchases, the Financial Times reported, citing unidentified officials involved in discussions. The plan will be announced on Sept. 27 and will focus on structural reforms to the Spanish economy requested by the EU, rather than new taxes and spending cuts, the newspaper said yesterday.
Spanish Prime Minister Mariano Rajoy is scheduled to meet his Italian counterpart Mario Monti today in Rome.
The Aussie declined 2.6 percent in the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar gained 0.1 percent.
Khor Hoe Ee, an assistant director in the IMF’s Asia and Pacific Department, said yesterday the fund is lowering its global growth forecast “by a few decimal points.” The most recent IMF estimate, released in July, predicted 2012 global expansion of 3.5 percent. It lowered the projection for next year to 3.9 percent, from an April forecast of 4.1 percent. Officials are due to release new forecasts Oct. 9.
Data yesterday showed a composite index for manufacturing and services industries in the euro area dropped to a three-year low, while a factory output gauge in China signaled contraction for an 11th month.
In a speech in Sydney today, Australian Treasurer Wayne Swan said China’s economic slowdown has been engineered by the nation’s leaders, who are able to adjust policies to alleviate a severe downturn. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.
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