The currencies strengthened as the MSCI Asia Pacific Index rose for a ninth day in its longest winning streak since 2004. The Australian and New Zealand dollars also rose as 74 percent of the companies in the Standard & Poor’s 500 Index that reported second-quarter results through yesterday beat analysts’ estimates. Gains in Australia’s dollar were limited on bets the central bank extended sales of the currency to weaken it.
“Good U.S. corporate earnings have been supportive of equities and therefore risk currencies,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney. “The backdrop is very good for Aussie.”
Australia’s currency increased 0.5 percent to 81.63 U.S. cents at 2:55 p.m. in New York, from 81.20 cents yesterday, and added 1.7 percent this week. The currency gained 0.3 percent to 77.34 yen, posting a 2.3 percent weekly gain.
New Zealand’s dollar climbed 0.4 percent to 65.65 U.S. cents, touching a nine-month high of 66.30 on July 22, and advanced 0.2 percent to 62.18 yen. It rose 1.8 percent against the dollar this week after posting a 2.7 percent gain last week. The kiwi appreciated 2.4 percent against the yen over the past five trading days.
The Australian dollar may advance toward 82.20 cents and 78.20 yen, while New Zealand’s currency may climb to 66.20 cents and 63 yen, according to Burke.
Benchmark Rates
Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
The Australian dollar may rise above 82.63 U.S. cents, its highest level this year, in coming weeks as the central bank is likely to increase its estimates for gross domestic product, said Richard Grace, chief currency strategist at the Sydney- based Commonwealth Bank of Australia.
The Reserve Bank will probably be among the first central banks to start raising rates, bolstering the currency’s appeal, Grace wrote today in a note to clients.
New Zealand’s central bank will leave the official cash rate unchanged when it meets July 30, according to the median estimate of 10 economists surveyed by Bloomberg News.
Aussie Selling
Gains in Australia’s dollar were limited after the currency touched 82.22 cents yesterday, the strongest level since June 11, on speculation the central bank is selling the currency. The Reserve Bank of Australia made net sales of A$1.9 billion ($1.5 billion) and A$1.4 billion of the Australian dollar in the market in June and May, respectively, the largest monthly sales since February 2004, according to bank data.
“The RBA has probably still been selling into strength in the currency and trimming its gains,” Greg Gibbs, a foreign- exchange strategist at Royal Bank of Scotland Group Plc in Sydney, wrote today. “Nevertheless, given buoyant risk appetite, it should continue to press against the upper part of its range.”
Australia sold today A$499 million of securities maturing in May 2021 at a weighted average yield of 5.79 percent. The bid-to-cover ratio at the auction was 2.4.
Australian government bonds fell for a third day. The yield on 10-year notes added 11 basis points, or 0.11 percentage point, to 5.70 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due in March 2019 slipped 0.824, or A$8.24 per A$1,000 face amount, to 96.714.
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