aud near years high as rba may flag rate rise

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Australian Dollar Near Year’s High as RBA May Flag Rate Rise
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By Candice Zachariahs

Sept. 1 (Bloomberg) -- The Australian dollar traded near the highest this year on speculation the central bank may shift its bias toward lifting interest rates, increasing demand for the nation’s assets. New Zealand’s currency rose.

The New Zealand dollar gained as China’s manufacturing expanded at the fastest pace in 16 months in August following a U.S. report yesterday that showed business activity climbed more than forecast last month. Reserve Bank of Australia Governor Glenn Stevens said Aug. 14 the benchmark rate would rise from its “emergency” setting at a half-century low of 3 percent. Economists in a Bloomberg News survey don’t expect a rate change when the bank gives its decision at 2:30 p.m. in Sydney.

“The big risk about the RBA today is whether they move to an explicit tightening bias, which would be a big policy turnaround,” said Amber Rabinov, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “We could see the Aussie dollar head toward 85 U.S. cents.”

Australia’s currency was little changed at 84.36 U.S. cents as of 11:40 a.m. in Sydney from 84.39 cents in New York yesterday, when it touched 84.59 cents, close to this year’s Aug. 14 high. The currency bought 78.57 yen. New Zealand’s dollar rose 0.2 percent to 68.63 U.S. cents from 68.51 in New York yesterday. It gained 0.2 percent to 63.93 yen.

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.

China Growth

China’s official Purchasing Managers’ Index rose to a seasonally adjusted 54 from 53.3 in July, according to the Federation of Logistics and Purchasing. The nation is Australia’s largest trading partner and bought 47 percent more from the South Pacific nation in the six months ended June 30 than in the same period of 2008.

Australia’s currency was little changed after the nation’s current-account deficit widened more than expected in the three months to June as exports of coal, iron ore and farm goods fell.

The shortfall on goods, services and investment grew to A$13.3 billion ($11 billion) from a revised A$6.35 billion in the first quarter, the Bureau of Statistics said today.

Australian government bonds fell for a fourth day. The yield on 10-year notes added four basis points, or 0.04 percentage point, to 5.46 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.291, or A$2.91 per A$1,000 face amount, to 98.454.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.15 percent.

To contact the reporter on this story: Candice Zachariahs