The Australian and New Zealand dollars rose for a third consecutive week on speculation the nations’ central banks will increase interest rates faster than other developed countries.
New Zealand’s dollar rose 1.8 per cent this week against the US dollar after central bank Governor Alan Bollard said a surging currency won’t impede raising borrowing costs. Australia’s currency approached the highest since August 2008 after a report showed the nation’s export prices fell at a slower pace in the three months through September. The South Pacific nations’ currencies declined today as US stocks dipped and crude oil fell for a second day.
"Commodity-producing nations such as Australia are considered the most promising in terms of economic growth," said Toshiya Yamauchi, a Tokyo-based manager at the foreign- exchange margin trading department at Ueda Harlow Ltd. "People are expecting additional rate hikes in Australia."
Australia’s dollar was buying 92.32 US cents in offshore trade on Friday night/Saturday morning, from 92.69 US cents the previous session. The currency gained 0.7 per cent against the greenback this week. It climbed 2 per cent this week to 85.01 yen.
New Zealand’s currency was at 75.42 US cents from 75.78 in New York. It touched 76.35 US cents on October 21, the most since July 2008. The kiwi rose 3.1 per cent this week to 69.47 yen.
The Standard & Poor’s 500 Index dropped 1 per cent to 1081.26, wiping out its weekly gains as oil losses dragged down industrial shares.
China Growth
Australia’s export price index slumped 9.6 per cent from the second quarter, when it dropped 20.6 per cent, the Bureau of Statistics said in Sydney earlier today. Import prices fell 3 per cent after dropping 6.4 per cent in the previous quarter.
Demand for Australia’s dollar may be bolstered after an official in China, its largest trading partner, indicated full- year growth will reach as much as 9 per cent, National Australia Bank said.
"This implies that fourth-quarter Chinese growth could hit double digits, which would be very supportive of commodity prices and the Australian dollar," John Kyriakopoulos, head of currency strategy at National Australia in Sydney, wrote in a note to clients today.
'Modify the Language'
New Zealand policy makers meet on October 29 and are expected by all 11 economists surveyed by Bloomberg News to leave the official cash rate unchanged. Bollard said September 10 that he will not raise interest rates until "the latter part of 2010".
"Certainly, they won’t raise rates next week, but the question in the market’s mind is to what extent they are going to modify the language," said Ray Attrill, global research director at Forecast in Sydney. "They expect the rates to remain at the present level until the latter half of 2010. That will basically be shifting their bias from easing to neutral."
Benchmark interest rates are 3.25 per cent in Australia and 2.5 per cent in New Zealand, compared with 0.1 per cent in Japan and as low as zero in the US, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Australian government bonds fell for a third day. The yield on the benchmark 10-year note climbed seven basis points, or 0.07 percentage point, to 5.69 per cent, the highest since August, according to data compiled by Bloomberg. The price of the 5.25 per cent security due March 2019 fell 0.466, or $4.66 per $1000 face amount, to 96.855.
New Zealand’s two-year swap
rate, a fixed payment made to receive floating rates and which is sensitive to
interest-rate expectations, rose to 4.5 per cent.
