The Aussie and Kiwi Dollars Fall as Easing Expectations are Kept Alive

“Australia’s dollar traded 0.3 percent from a five-week high after central bank Deputy Governor Philip Lowe defended a higher exchange rate and savings level, saying they helped stabilize the economy.

The so-called Aussie rose against the yen after minutes of the Reserve Bank of Australia’s March 5 meeting said there are signs the economy is responding to low interest rates. New Zealand’s currency slid against most major peers after Finance Minister Bill English said the currency is overvalued and he expects interest rates to stay lower for longer.

“The deputy governor is sounding the victory bell on inflation in the mining boom,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “We managed to come through the boom without an excessively high level of inflation. It’s hard to see a long- term short position in the Australian dollar bearing any fruit,” he said referring to bets that an asset will decline.

The Australian currency fetched $1.0386 as of 4:50 p.m. in Sydney from $1.0402 yesterday. It touched $1.0415 on March 15, the highest since Feb. 5. The Aussie added 0.3 percent to 99.28 yen. New Zealand’s kiwi weakened 0.2 percent to 82.55 U.S. cents. It gained 0.3 percent to 78.91 yen.

The RBA’s Lowe said a stronger currency and higher savings rate have helped contain inflation and allowed lower interest rates even as the mining industry boomed.

“These factors have helped Australia to digest a huge investment boom without generating substantial imbalances in the economy,” he said today in Sydney.

RBA Policy

“The market will certainly interpret the comments in a positive light,” said ANZ’s Salter. “They will encourage the market to continue pricing in a normalization of policy in Australia.” ANZ expects the RBA to hold benchmark borrowing costs unchanged in April.

Interest-rate swaps data compiled by Bloomberg show traders see a 18 percent chance the RBA will cut the benchmark rate at the next meeting on April 2….”

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