Bloomberg News

Aussie Dollar Set for Weekly Gain as Stocks Rally; Yields Rise

November 23, 2012

The Australian dollar was poised for a gain this week after global stocks rallied, buoying demand for riskier assets.

Ten-year bond yields climbed to the highest in almost a month amid speculation European finance ministers will agree on an aid package for Greece. Data this week also indicated manufacturing is improving in China, Australia’s largest trading partner, boosting demand for the so-called Aussie. The New Zealand dollar headed for a weekly advance.

“There is some possible momentum building for maybe a shift back towards $1.05 given the way the Aussie rejected that move below $1.03,” said Jim Vrondas, a manager at online foreign-exchange dealer OzForex Ltd. in Sydney. The Australian currency could rise above $1.0420 early next week, he said.

The Australian dollar bought $1.0396 as of 4:50 p.m. in Sydney from $1.0390 yesterday and $1.0339 at the end of last week. The currency fell as low as $1.0288 on Nov. 16 and climbed as high as $1.0425 on Nov. 20. The Aussie’s implied three-month volatility fell to 7.4 percent, the lowest since October 2007.

The New Zealand dollar bought 81.67 U.S. cents from 81.59 yesterday and 81.27 on Nov. 16.

The MSCI World (MXWO) Index of stocks added 0.5 percent yesterday and is up 3 percent this week. The MSCI Asia Pacific Excluding Japan index of stocks gained 0.6 percent today. Markets in Japan are closed today for a holiday, while the U.S. was shut yesterday for Thanksgiving.

Bonds Decline

Aussie bonds fell today, pushing the yield on 10-year notes up to 3.30 percent, the most since Oct. 26, from 3.25 percent yesterday.

Bond rates climbed and the Australian dollar was supported even as swaps traders added to bets that the Reserve Bank of Australia will lower its benchmark rate from 3.25 percent when it meets in December. Data compiled by Bloomberg indicate traders see a 64 percent chance that policy makers will lower the rate to 3 percent on Dec. 4, up from a 58 percent probability yesterday.

The improving outlook for the Chinese economy has helped buoy risk sentiment this week, with a private report on manufacturing released yesterday indicating expansion for the first time in 13 months. A preliminary reading of the by HSBC Holdings Plc and Markit Economics purchasing managers index for November was 50.4, compared with a final level of 49.5 in October. Figures above 50 indicate growth.

In Europe, finance ministers are scheduled to meet on Nov. 26 to discuss unlocking bailout funds for Greece. They failed to reach an agreement after 11-hour talks broke up on Nov. 21.

“If anything from Europe, we’re probably going to get a little bit more positive sentiment coming over the next week,” said OzForex’s Vrondas. “It should only be relatively short- lived, but probably going to be enough” to lift the Australian dollar.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net


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