The Australian dollar strengthened to the highest level in 11 weeks against the greenback as Asian stocks extended a global equity rally, boosting demand for higher-yielding assets.
The so-called Aussie gained for a fifth day before US jobs data that may add to the case for more monetary stimulus from the Federal Reserve. Demand for the Australian and New Zealand dollars was supported as volatility for major currencies slid to the lowest since November 2007, making investments in nations with higher interest rates more attractive.
The Aussie and kiwi “are certainly looking quite strong at the moment,” said Jeremy Jukes, a foreign-exchange dealer in Auckland at Velocity Trade. “Mild weakness in the US data has been positive for risk assets because there’s going to be more chance of more stimulus.”
Australia’s dollar gained as much as 0.3 per cent to $1.0398 (Dh3.8), the highest level since May 1, before trading at $1.0392 as of 2.46pm in Sydney on Thursday. New Zealand’s dollar rose 0.1 per cent to 80.14 cents from Wednesday, when it climbed 0.3 per cent. It earlier touched 80.19, the highest since July 6.
The MSCI Asia Pacific Index of stocks rose 1.5 per cent following a 0.8 per cent advance in the MSCI World Index on Wednesday.
Applications for first-time jobless benefits in the US probably increased by 15,000 in the week ended July 14 to 365,000, according to median estimate of economists surveyed by Bloomberg News before the Labour Department releases figures on Thursday.
The Fed released its Beige Book business survey on Wednesday, saying the US economy expanded at a “modest to moderate” pace last month as retail sales and manufacturing cooled in some regions. It gives central bankers anecdotal evidence on the economy before they open a two-day policy meeting on July 31.
Implied volatility on three-month options for Group-of-Seven currencies matched Wednesday’s low of 8.67 per cent, the least since November 2007, according to the JPMorgan G7 Volatility Index. The average over the past five years is 12.4 per cent. Three-month implied volatility for the Australian dollar today matched Wednesday’s low of 10.05, the least since May 2.
The Aussie’s volatility “has made another local low,” according to a note from National Australia Bank’s currency strategy team led by Ray Attrill. “This means that ‘volatility adjusted’ attractions of the Australian dollar as a carry trade are enhanced.”
Central bank interest rates in Australia and New Zealand are 3.5 per cent and 2.5 per cent respectively, versus near zero in the US and Japan.
Australia’s government bonds declined, with the yield on ten-year debt up two basis points, or 0.02 percentage point to 2.95 per cent. Sales of A$500 billion (Dh1,911 billion) of three-month bills drew bids valued at 8.83 times the amount on offer, the highest bid-to-cover ratio since April 2011.
“Markets like Australia, Korea, Canada, Singapore that typically perhaps have been small parts of global portfolios are becoming more important because the core large markets are increasingly looking very poor quality,” Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group, said in a Bloomberg Television interview. Yetsenga expects the Australian dollar to rise to $1.05.
In New Zealand, the number of job advertisements in newspapers and on the internet declined 1.4 per cent in June from the previous month, according to a report from ANZ.
The country’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 2.63 per cent.