Australian Dollar Rises as RBA Unexpectedly Halts Rate Cuts

By Candice Zachariahs and Theresa Barraclough

March 3 (Bloomberg) -- Australia’s dollar rose against the greenback after the central bank unexpectedly left borrowing costs unchanged, halting its most aggressive round of interest- rate cuts. New Zealand’s dollar rose from near a 6 1/2-year low.

Australia’s dollar also advanced against the yen after the nation’s current-account deficit narrowed in the fourth quarter and retail sales rose in January, when analysts had forecast a decline. The nation’s economy probably expanded 0.2 percent in the fourth quarter, data to be released tomorrow will show, according to a Bloomberg survey of 23 economists.

“In the short-term the Aussie dollar should sustain this bounce, because people will quickly turn to the GDP numbers tomorrow,” said Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp., Australia’s fourth-largest bank by assets. “It looks like it will be a positive number, which in global terms is unique.”

Australia’s currency rose 0.8 percent to 64.01 U.S. cents as of 4:31 p.m. in Sydney, from late in Asia yesterday. The currency earlier fell as low as 62.87 U.S. cents, the weakest since Feb. 3. It advanced 1.3 percent to 62.39 yen.

New Zealand’s dollar advanced 0.4 percent to 49.66 U.S. cents, after touching 49.17 cents earlier, close to its lowest since November 2002. It bought 48.38 yen from 48.05 yen.

“It seems like the RBA will be on hold for the next couple of months,” said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

Interest Rates

Governor Glenn Stevens kept the overnight cash rate target at 3.25 percent, a move forecast by four of 18 economists surveyed by Bloomberg News. Seven expected a half-point reduction and seven tipped a quarter-point cut.

Stevens lowered the benchmark by four percentage points between September and February.

The shortfall on goods, services and investment shrank in Australia to A$6.49 billion ($4.1 billion) from a revised A$9.47 billion in the third quarter. The median estimate in a Bloomberg News survey of 18 economists was for a current account deficit of A$7.35 billion.

Retail sales, seasonally adjusted, advanced 0.2 percent from December, compared with the median forecast of 19 economists surveyed by Bloomberg News for a 0.5 percent drop.

“The data highlights the fact that the Australian economy is better placed than other major economies around the world,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. The Australian dollar may advance toward 64 U.S. cents “before losing steam,” she said.

Rates, Stocks, Commodities

Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ assets. The Reserve Bank of New Zealand is forecast to trim its target rate by 75 basis points to 2.75 percent on March 12, according to a separate survey.

The Australian dollar has dropped 26 percent since the central bank began lowering rates from a 12-year high in September and fell as low as 60.10 U.S. cents in October.

The currency “has probably seen the bottom of this cycle and is likely to grind higher,” wrote Richard Grace, chief currency strategist at the Commonwealth Bank of Australia in Sydney.

The Australian and New Zealand dollars fell earlier as equities dropped worldwide after American International Group Inc. posted the worst corporate loss in U.S. history and HSBC Holdings Plc said it needed to raise capital, triggering the worst plunge in U.K. banks since at least 1985.

Commodity Exports

Commodity exports, which generate 60 percent of Australian overseas sales, will fall in fiscal 2010 for the first time in six years, according to an Australian government report today. Commodity exports may drop 17 percent from a record to A$162 billion in the 12 months ending June 30, 2010, the Canberra- based Australian Bureau of Agricultural and Resource Economics said today in a report.

The worst of the global financial crisis has passed and growth may return by the end of the year, Andrew Burns, lead economist at the World Bank’s development prospects group, said today at the ABARE conference.

Australian government bonds reversed gains after the rates decision. The yield on 10-year notes added one basis point, or 0.01 percentage point, to 4.31 percent, after touching 4.19 percent earlier, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.01, or A$0.10 per A$1,000 face amount, to 107.60.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.24 percent from 3.25 percent yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net