By Candice Zachariahs
Nov. 25 (Bloomberg) -- The Australian and New Zealand dollars pared gains, after advancing the most in more than three weeks, as investors speculated the U.S. government’s rescue of Citigroup Inc. won’t avert a global economic slowdown.
The currencies strengthened for a second day against the U.S. dollar and yen as prices rose for commodities that account for more than half of the nations’ exports. New Zealanders’ inflation expectations declined, a report showed today, reinforcing the likelihood that policy makers will slash interest rates at a Dec. 4 central bank meeting.
“We’ve been here before in terms of market euphoria on bailout news only to see those gains unwind very rapidly,” said Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney. “We’ve had a pretty good run-up and the market is cautious of extending those gains too much.”
Australia’s currency rose as much as 4.2 percent, the most since Oct. 30, before trading at 64.39 U.S. cents as of 4:43 p.m. in Sydney, up 2.3 percent from 62.93 cents late in Asia yesterday. The currency advanced 3.6 percent to 62.02 yen.
New Zealand’s dollar gained 1.4 percent to 54.22 U.S. cents from 53.47 cents in Asia yesterday. It bought 52.25 yen from 50.89.
Inflation will average 2.7 percent in two years, according to a survey of 64 New Zealand business managers published today on the Reserve Bank of New Zealand’s Web site. Managers were estimating inflation of 3 percent in the previous survey in August.
Central Bank Cuts
Eleven of 14 economists surveyed by Bloomberg News expect the central bank to cut the official cash rate by 1 percentage point to 5.5 percent next month. Four forecast a 1.5 point reduction.
RBC Capital Markets and Westpac Banking Corp. both recommend investors buy the Australian dollar as it may rise above NZ$1.20 as markets pare back expectations of how much the Reserve Bank of Australia will lower its benchmark rate when it meets Dec. 2.
Traders are betting that the RBA will lower rates at least 100 basis points with a 47 percent chance of a 125 point cut, according to a Credit Suisse index based on overnight swaps trading. The median forecast of 17 economists surveyed by Bloomberg News is for a 75 basis-point reduction. The Australian dollar could rise to NZ$1.23, said Trinh. The currency traded at NZ$1.1858 from NZ$1.1772 yesterday.
Stocks, Commodities Rise
The Australian and New Zealand currencies rose as U.S. stocks posted the biggest two-day rally since 1987 after the government guaranteed $306 billion of Citigroup assets and U.S. lawmakers pledged to pass another stimulus package.
They also strengthened as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials advanced the most since Oct. 29. Gold, Australia’s third most-valuable raw material export, reached a five-week high.
The Australian dollar should find support at 64.20 cents, while the New Zealand dollar may break below 54.10 cents toward 53.50 cents, said Trinh. Support is a level where buy orders may be clustered.
Australian government bonds declined for the first time in seven days. The yield on the 10-year note climbed 7 basis points, or 0.07 percentage point, to 4.675 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.623, or A$6.23 per A$1,000 face amount, to 104.649.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 5.19 percent from 5.13 percent yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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