The Australian dollar traded 0.4 percent from a one-week high before the nation’s central bank releases its twice-yearly Financial Stability Review tomorrow.
Demand for the so-called Aussie was bolstered as traders cut bets that the Reserve Bank of Australia will lower interest rates next month. New Zealand’s currency reversed declines as the nation’s statistics bureau said the current-account deficit neared the smallest in a decade as a share of the economy.
“The Aussie may get bid up as the market removes the chances of a rate cut and puts in the chances of a rate hike,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “For the New Zealand economy to have a current account deficit less than 4 percent is pretty good.”
Australia’s currency traded at $1.0089 as of 4:40 p.m. in Sydney from $1.0103 in New York yesterday, when it reached $1.0129, the most since March 14. The Aussie was at 81.55 yen from 81.80 yen. New Zealand’s dollar bought 74.06 U.S. cents from 74.01 cents, and fetched 59.86 yen from 59.92 yen.
The probability of a reduction in Australia’s benchmark interest rate on April 5 is 13 percent, from as much as 34 percent last week, according to a Credit Suisse Group AG Index based on swaps.
Benchmark rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
N.Z. Deficit
New Zealand’s current-account deficit is hovering near the smallest since 2001 as a share of gross domestic product amid rising milk, meat and lumber exports, and reinsurance payments after a magnitude-7 quake struck the South Island city of Christchurch in September. More payments for another, more damaging temblor Feb. 22 may push the current account into surplus this year.
The shortfall was 2.3 percent of gross domestic product in the year ended Dec. 31. The gap in the year through September was revised to 2.2 percent from a previously reported 3.1 percent.
“We expect the current account to post a surplus of around 1 percent of GDP in fiscal year 2010-11 on the back of these flows and higher dairy prices,” Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney, wrote in a note to clients. “Countering this will be a worsening in the government’s fiscal position to fund earthquake-related expenses,” which will likely put pressure on the nation’s ratings, he said.
Boost From Reconstruction
Demand for the so-called kiwi may not weaken much before a government report tomorrow forecast to show New Zealand’s economy nearly stalled in the fourth quarter, said Commonwealth Bank’s Capurso.
“The Reserve Bank has preempted the GDP report and cut rates,” he said. “Now we’re looking forward to the reconstruction which, when it does happen, will ramp up the kiwi economy.”
New Zealand’s GDP grew 0.1 percent in the final quarter of 2010, according to the median forecast of economists surveyed by Bloomberg News, after shrinking 0.2 percent in the three months ended Sept. 30.
Central bank Governor Alan Bollard on March 10 cut borrowing costs by half a percentage point, citing the magnitude 6.3 earthquake that struck Christchurch on Feb. 22.
Gains in both currencies were limited as the MSCI Asia Pacific Index of regional stocks fell, damping demand for higher-yielding assets, and amid speculation a rally over the past three days has been too rapid.
“It’s risk off so we’re seeing a little selling of Aussie,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “There will be dip- buyers around,” he said near $1.0050 and 81 yen per Australian dollar.
