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Aussie Set for Fourth Weekly Drop Against Kiwi on Rate Outlooks - (Bloomberg)

Posted by Chris Advincula on Sep 20, 2013 7:27:00 AM

Australia’s dollar was set for a fourth weekly decline against its New Zealand counterpart as prospects for the nations’ monetary policies diverged.

Reserve Bank of Australia board member John Edwards said in an interview with the Australian Financial Review that he prefers a weaker currency. The kiwi was near a four-month high against the U.S. dollar after the Federal Reserve refrained from tapering monetary stimulus that has propped up asset prices worldwide. The Reserve Bank of New Zealand said on Sept. 12 that interest-rate increases will probably be required next year from the all-time low of 2.5 percent as inflation picks up.

“The difference in the monetary-policy outlooks is very clear: the RBA continues to signal a possible rate cut, while New Zealand’s central bank has said it may raise rates next year,” said Kengo Suzuki, the chief currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest financial group by market value. “Aussie-kiwi has some more room to fall.”

Australia’s currency fell 0.1 percent to NZ$1.1262 as of 4:53 p.m. in Sydney, having dropped 0.9 percent this week. It earlier touched NZ$1.1255, the weakest since Aug. 1, when it slid to as low as NZ$1.12, a level unseen since October 2008.

The Aussie rose 0.1 percent to 94.48 U.S. cents, extending a gain this week to 2.2 percent. The kiwi added 0.2 percent to 83.90 U.S cents after reaching 84.36 yesterday, the strongest since May 9. It has advanced 3.2 percent since Sept. 13.

Bond Yields

Ten-year Australian bond yields climbed six basis points to 3.94 percent, trimming a weekly decline to 15 basis points. Three-year yields gained four basis points to 2.81 percent, having fallen 11 basis points since Sept. 13. A basis point is 0.01 percentage point.

Australia’s government will sell a new 2035 inflation-linked note via banks, the government funding arm said today in an e-mailed statement. The issue will be the longest-maturity note since the 1996 offering of indexed securities due in 2020, official data show.

Traders are almost certain that the RBNZ will raise the benchmark rate by April, overnight-index swaps data compiled by Bloomberg show. There’s a 48 percent chance the RBA will lower its benchmark rate, already at a record-low 2.5 percent, by then, according to the figures.

The Fed maintained its $85 billion pace of monthly debt purchases on Sept. 18, while economists surveyed by Bloomberg News had projected it would dial down the quantitative-easing program by $5 billion.

National Australia Bank Ltd. raised its forecasts on the Australian and New Zealand currencies, saying the Aussie will finish this year at 92 U.S. cents, compared with its previous projection of 86. The kiwi will probably stand at 84 U.S. cents at the year-end, up from the prior forecast of 78, NAB said.

Proxy Trades

The 60-day rolling correlation between the Bloomberg-JPMorgan Asia Dollar Index and the Aussie climbed to 0.64, the highest since October. The measure, which shows to what extent two variables move together between zero and one, was 0.60 for the kiwi and the Asian Dollar Index.

The Asian Dollar Index, which tracks the region’s 10 major currencies excluding the yen, has rebounded 2.4 percent since sliding to a three-year low on Aug. 28. India’s rupee and Indonesia’s rupiah had slumped in the past three months on concern tapering by the Fed would accelerate capital outflows from emerging markets.

“The Fed has a sort of thrown a lifeline to a lot of emerging-market currencies, which see very high correlation between EM FX and the Aussie and kiwi as a kind of proxy trades,” Ray Attrill, the global co-head of currency strategy at National Australia Bank in Sydney, said in an interview with Bloomberg Television. “To the extent that it’s just relieved the downward pressure on those currencies for the time being, it’s putting some upward pressure on the Aussie and kiwi.” 


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