Australian Dollar Snaps 12-Day Slide on Bets Sell-Off Excessive

By Candice Zachariahs

Aug. 14 (Bloomberg) -- Australia's dollar gained, snapping a 12-day losing streak versus the U.S. currency, after investors deemed the currency's sell-off was excessive and prices of commodities the nation exports such as gold and crude oil rose.

The Australian currency pared its loss against the U.S. dollar to 10 percent in the past month and 7.1 percent versus the yen as the UBS-Bloomberg Constant Maturity Commodity Index rebounded to its biggest one-day gain since June 6. It climbed against all 16 of the most-traded currencies as signals on charts traders watch to predict price movements showed the Australian dollar was due to pare losses.

``The Australian dollar has lost ground for more than 10 days straight and for a major currency that is rather unusual,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``A rebound has been overdue. Some of these market moves are looking somewhat overextended.''

Australia's dollar strengthened 0.9 percent to 87.60 U.S. cents at 8:33 a.m. in Sydney, from 86.84 cents in late Asian trading yesterday when it touched 85.93, the lowest since Jan. 23. It gained 1.3 percent to 95.79 yen, from 94.60 yesterday.

The local dollar has been the worst performer of the 16 most-active currencies over the past month. Its 14-day relative strength index has fallen to 19.62 against the U.S. dollar and 29.35 versus the yen. An RSI, a gauge of momentum over a given period, below 30 or above 70 signals a reversal may occur.

Interest-Rate Bets

The currency has fallen over the past month on speculation the Reserve Bank of Australia will reduce borrowing costs from a 12-year high of 7.25 percent to boost a slowing economy. Traders expect the bank to cut interest rates by 1.05 percentage points over the next 12 months according to a Credit Suisse Group index based on overnight swaps trading. The RBA said Aug. 11 that a ``significant moderation'' in demand would slow inflation, making room for it to reduce rates.

Australia's dollar gained as the UBS Bloomberg Constant Maturity Commodity Index rose 2.9 percent, gaining for the first time in four days. Gold, the nation's third most-valuable raw material export, increased for the first time this month, while the price of crude oil rose $2 a barrel after a U.S. government report showed a bigger-than-forecast decline in gasoline inventories. Commodities account for 60 percent of Australia's exports.

Australian government bonds gained for a fifth day. The yield on the 10-year bond fell 2 basis points, or 0.02 percentage point, to 5.85 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.135, or A$1.35 per A$1,000 face amount, to 95.302. Bond yields move inversely to prices.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net