By Patricia Lui and Garfield Reynolds
April 16 (Bloomberg) -- The Australian dollar rose and New Zealand’s currency pared losses as regional stocks gained on signs the U.S. recession may be easing.
Australia’s currency reversed earlier losses against the greenback and the yen as the nation’s S&P/ASX 200 Index headed for its highest close in five months and New Zealand’s NZX 50 Index advanced 1.9 percent. The Standard & Poor’s 500 Index rose 1.3 percent yesterday after a Federal Reserve survey showed that economic contraction slowed in some regions.
“The Aussie and kiwi dollars are regarded as growth currencies and the correlation between stocks and currencies has been very strong,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “It’s no surprise then that with Wall Street up last night, we are seeing both markets higher when Asian trading picked up this morning.”
Australia’s dollar climbed 0.3 percent to 73.09 U.S. cents as of 10:55 a.m. in Sydney, from 72.88 cents yesterday, after falling to as low as 72.61 cents earlier. It rose 0.4 percent to 72.69 yen. New Zealand’s currency fell to as low as 57.67 U.S. cents from 58.12 cents yesterday, before trading at 57.87 cents. It declined 0.4 percent to 57.49 yen.
Stock Gains
U.S. stocks extended gains yesterday after the Fed said in its Beige Book regional business survey that the contraction eased across some of the biggest regional economies last month, with some industries “stabilizing at a low level.”
Industrial production in the U.S. fell in March more than economists forecast, according to a separate Fed report, undermining optimism that the worst of the slump may be ending.
“We may be at the tail end of an optimistic wave, yet the U.S. economy is still in recession and the economic data is still painting a very ugly picture,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd., from Auckland. “A lot of the optimism we’ve been seeing has been driven by a perception the global economy is on the road to recovery.”
The Australian currency may struggle to break through 73.25 U.S. cents today, Hampton said. It will would find support toward 71.80 cents, she said. Support refers to levels where buy orders may be clustered.
New Zealand’s dollar may decline toward 57.40 U.S. cents and is unlikely to advance any higher than 58.50 cents, Hampton said.
New Zealand manufacturing shrank for an 11th month in March as a deepening global recession curbed demand for exports, a report today showed, giving policy makers more scope to reduce interest rates from a record low 3 percent.
New Zealand Risks
“There are downside risks because of the country’s economic situation, there’s not enough monetary easing priced in,” Hampton said. “We expect a 50 basis point cut at the April 30 Reserve Bank meeting and a signal for more cuts.”
The performance of manufacturing index was 40.7 compared with 38.9 in February, Bank of New Zealand Ltd. and Business New Zealand said in Wellington today. A reading below 50 shows manufacturing is contracting.
The Australian dollar rose 0.8 percent against the New Zealand currency to trade at NZ$1.2635, according to data compiled by Bloomberg.
“I’m surprised the cross is not stronger at NZ$1.28 or NZ$1.30,” ICAP’s Carr said. “New Zealand has a bit of dilemma with its massive current account and fiscal deficits. Australia is growing in comparison and has far sounder fundamentals.”
New Zealand’s recession is likely to extend for six quarters, the worst in more than three decades, as a contraction in the world’s biggest economies curbs exports, the Reserve Bank said last month. Slowing manufacturing adds to signs the jobless rate may surge to a 10-year high as firms cut costs.
Australian government bonds rose for a second day, pushing the 10-year yield down by six basis points, or 0.06 percentage point, to 4.52 percent, the lowest since April 3. The price of the 5.25 percent security maturing in March 2019 gained 0.52, or A$5.20 per A$1,000 face value, to 105.81, according to Bloomberg data.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.66 percent from 3.69 percent yesterday.
To contact the reporter on this story: Patricia Lui in Singapore at Plui4@bloomberg.net
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