WSJ: Australian Dollar Up Late, Boosted By China Comments
SYDNEY (Dow Jones)--The Australian dollar rallied back closer to parity with the U.S. dollar on Tuesday, lifted by positive sentiment surrounding the euro zone.
Australian bonds were damped by the improving sentiment, shrugging off cautious minutes from the central bank's latest meeting released on earlier Tuesday.
In a relatively quiet news day, China Vice Premier Wang Qishan said China supports euro zone measures to ensure financial stability. Traders said the comments from a leader of Australia's largest trading partner helped the move in riskier assets, particularly the Australian dollar.
"The euro gained and that is leading the Aussie higher. We could even have another parity test going into Europe if they pick up on the Chinese comments as we just haven't had many good stories on the euro zone," said Tony Darvall, a senior dealer with Easy Forex in Sydney.
Further helping the risk sentiment, many investors were relieved that South Korean artillery tests conducted Monday didn't provoke a military response from North Korea.
At 0545 GMT, the Australian dollar traded at US$0.9966, up from US$0.9869 late Monday and closer to U.S. dollar parity than it has been in a week.
Against the Japanese yen, the Australian dollar traded at Y83.365, up from Y82.78.
Rob Rennie, head of currency trading at Westpac, said the first few weeks of 2011 could see the Australian dollar reverse Tuesday's move and weaken as risk aversion grows. A number of European countries are likely to be downgraded around the end of January given that they are already on watch from the credit ratings agencies, he said.
Couple that with early Lunar New Year celebrations in Asia and heavy supply likely in global debt markets, there could be a jittery start to the year, he said.
Australian bonds moved on similar factors, paring a string of gains in the past week.
Even so, some of the gains of the past week were partly validated after the Reserve Bank of Australia said rising household savings are likely to take pressure off inflation if cautious spending habits among consumers continue, suggesting it is no rush to raise rates. The central bank has raised interest rates seven times since October 2009, though it did pause with rates at 4.75% at its December session.
In the minutes of the December policy meeting, the central bank said the decision to leave interest rates was taken as rates had been raised as recently as November and the Australian dollar remained high, creating a "mildly restrictive" stance for policy.
"Overall, we see the RBA as revealing little urgency for higher rates near term. The key risk to the view remains that the RBA's assessment that GDP may be less weak than the third quarter data implies sees them hiking in the second quarter, a little earlier than we currently expect," said UBS Economist Scott Haslem.
In the interest rate futures market Tuesday, the 3-year bond futures contract lost five ticks to 94.69, while the 10-year bond lost 5.5 ticks to 94.375.
--By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com
