Australia Dollar Reaches 2009 High; Stevens Sees Faster Rebound

The Australian dollar rose to its highest this year after central bank Governor Glenn Stevens said the nation’s economic downturn may not be “one of the more serious” of the post-World War II era.

The currency touched its strongest since Sept. 29 as interbank futures showed a 60 percent chance the Reserve Bank of Australia will start raising borrowing costs by December. The New Zealand dollar headed for its fifth monthly gain, the longest winning streak since 2004, as the RBA Governor’s speech added to optimism the worst of the global recession is over.

“Stevens’ comments are very Aussie-positive,” said Sharada Selvanathan, a currency strategist at BNP Paribas SA in Hong Kong. “The markets may start to assume that the Reserve Bank of Australia could be the first” to start increasing interest rates.

Australia’s dollar rose 1 percent to 83.12 U.S. cents as of 5:05 p.m. in Sydney after earlier touching 83.17 cents. The currency bought 79.04 yen from 78.31 yen yesterday and earlier reached 79.08 yen, the highest since June 15.

New Zealand’s dollar added 0.8 percent to 66.17 U.S. cents from 65.67 cents in New York yesterday. It bought 62.97 yen, the most since June 30, from 62.50 yen yesterday.

“We can much more easily imagine upside risks to the outlook” than six months ago, Governor Stevens said in a speech on “Challenges for Economic Policy” in Sydney today. Traders bet the central bank will increase its benchmark by 1.13 percentage points within a year, according to a Credit Suisse index based on swaps trading. That’s up from yesterday’s wagers for a 0.98 percentage point advance.

Jobless, Monetary Policy

“I’ve never seen written down or heard in discussion some rule of thumb that says we wait until unemployment is peaking before we lift the cash rate,” the RBA governor said in remarks after the speech.

“Stevens was quite hawkish,” said Selvanathan. “This is an environment where investors are willing to take on risks,” she said, which may drive the currency toward 84.70 cents.

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero 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. link....