By Candice Zachariahs
April 2 (Bloomberg) -- The Australian dollar advanced to the highest this week after the nation’s trade surplus unexpectedly widened as gold exports surged. New Zealand’s currency fell.
New Zealand’s dollar declined as Finance Minister Bill English said a stronger currency would make it difficult for the nation to snap out of its worst recession in more than three decades. Gains in the Australian dollar may be limited ahead of a meeting of the European Central Bank, where policymakers are forecast to lower their benchmark interest rate to 1 percent.
“The Aussie dollar’s kneejerk reaction was to rally,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “Gains over 70 cents will not be sustainable in an environment of a sharply slowing global economy,” she said referring to the currency by its nickname.
Australia’s currency rose 0.2 percent to 70.04 U.S. cents, near its strongest this week, as of 12:01 p.m. in Sydney from 69.78 cents before the report and 69.93 cents late in New York. It advanced 0.2 percent to 69.04 yen.
New Zealand’s dollar fell 0.4 percent to 56.55 U.S. cents from 56.78 cents in New York late yesterday. It bought 55.74 yen from 55.94.
Australia’s trade surplus expanded to A$2.11 billion ($1.47 billion) in February as gold exports, the nation’s third most- valuable raw material export surged, the Bureau of Statistics said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg News was for A$700 million.
The Aussie will likely trade between 68.50 U.S. cents and 70.50 cents while New Zealand’s dollar will trade between 55.50 U.S. cents and 57 cents, said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.
‘An Anomaly’
“Rising interest rates and a rising dollar are going to make it a bit more difficult for New Zealand to get through the bottom of this recession and out the other side,” English said today in an interview with Radio New Zealand. “If we are in the bottom of a sharp recession, then rising interest rates and a rising currency are a bit of an anomaly.”
A lower currency would bolster exports, which make up 30 percent of the economy, English said. New Zealand’s dollar surged 12 percent in March against the greenback, its biggest advance since 1985.
Gains in the two currencies may be limited before the ECB announcement and a meeting in London of the group of 20 largest developed and emerging nations, where leaders will discuss tighter regulation for financial markets.
“The near-term outlook for New Zealand is undeniably ugly and further rate cuts from the Reserve Bank of New Zealand are likely in coming months, which will weigh on the currency,” said Hampton. “People are largely sitting on the sidelines ahead of the G20 and ECB meeting and the U.S. dollar will probably remain firm.”
Benchmark Interest Rates
Benchmark interest rates are 3.25 percent in Australia and 3 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. The risk in such trades is that currency market moves will erase profits.
Australian government bonds were unchanged with the yield on 10-year notes at 4.39 percent, according to data compiled by Bloomberg. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.70 percent from 3.67 percent yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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