By Candice Zachariahs
Feb. 3 (Bloomberg) -- The Australian dollar rose after the government said it will spend A$42 billion ($26.7 billion) on grants and infrastructure to prevent a recession. New Zealand’s currency climbed from near a six-year low.
Australia’s currency ended three days of losses on speculation the extra outlays lasting through June 2012 will help the nation counter a recession. Australia’s dollar earlier traded near a two-month low on concern the central bank will cut interest rates by more than forecast to the lowest since the 1960s at a meeting today.
“The Australian dollar can rally a bit further up to 64 to 66 U.S. cents,” said Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney. “From there the realities of a slowing global economy and worsening terms of trade will remain important factors driving the currency lower again.”
Australia’s currency climbed to 63.70 U.S. cents as of 1:23 p.m. in Sydney from 62.72 cents late in Asia yesterday. It earlier touched 62.57 U.S. cents, close to yesterday’s two-month low of 62.49 cents. The currency advanced 2.5 percent to 57.21 yen after falling 3 percent yesterday.
New Zealand’s dollar gained to 50.93 U.S. cents from 49.92 cents yesterday. It touched 49.62 U.S. cents, the weakest since November 2002. It rose to 45.74 yen from 44.40 yen yesterday.
Australia’s stimulus package includes A$12.7 billion in grants from next month to families and low-income earners and A$28.8 billion on infrastructure. It will help send the nation’s budget into a A$22.5 billion deficit, the first shortfall since fiscal 2001-02.
Trade Surplus
The nation’s trade surplus narrowed in December by more than forecast as coal and metal exports declined, a government report showed today. The surplus shrank in December to A$589 million from a revised A$979 million in November.
Australia’s currency tumbled 32 percent over the past six months as the central bank lowered borrowing costs by 3 percentage points since September.
The RBA will cut its benchmark rate 1 percentage point to 3.25 percent, according to the median forecast of 20 economists surveyed by Bloomberg News. Traders are betting on a 34 percent change of a bigger cut, down from 54 percent before the stimulus was announced, a Credit Suisse Group index based on swaps trading shows.
Benchmark interest rates are 4.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. New Zealand’s central bank cut its benchmark 1.5 percentage points on Jan. 29.
‘Relatively Well’
Investors should buy the Australian dollar against New Zealand’s as it may rise as much as 4 percent toward NZ$1.30, Barclays Capital said today. They should exit the trade if the currency weakens to NZ$1.2390 per Australian dollar. It traded at NZ$1.2506 today.
“We do not think that the RBA has to follow the RBNZ as Australian economic data have been holding up relatively well and there is more room for fiscal stimulus in Australia,” David Forrester, a currency economist at Barclays in Singapore, wrote in a research note sent to clients today.
Consumer confidence in New Zealand sank to a 10-year low amid a deepening recession, according to a survey by UMR Research. Seventy-two percent of 750 people surveyed in late January expect the economy to get worse this year, up from 56 percent in December, UMR said in a report.
New Zealand’s economy will remain in recession until at least March 31, the Treasury Department said yesterday.
Australian government bonds were little changed with the yield on the 10-year note at 4.10 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.009, or A$0.09 per A$1,000 face amount, to 109.448.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.28 percent from 3.32 percent.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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