Nov. 2 (Bloomberg) -- The Australian dollar pared declines against the greenback after futures signaled U.S. stocks may recover from their biggest weekly slump since May, supporting demand for higher-yielding assets.
Australia’s currency also found buyers as a gauge of house prices in the nation rose 4.2 percent in third quarter, beating analysts’ expectations for a 3 percent gain. The Reserve Bank of Australia will raise its benchmark interest rate by 25 basis points to 3.5 percent at a meeting tomorrow, according to a Bloomberg News survey of economists.
“The market is very skittish from the liquidation we had last week and this morning,” said Phil Burke, chief foreign- exchange dealer at JPMorgan Chase & Co. in Sydney. “Equity futures have turned positive so we could see the Aussie climb up to 90.50 U.S. cents.”
Australia’s currency traded at 89.93 U.S. cents as of 12:33 p.m. in Sydney from 89.97 cents in New York on Oct. 30. It earlier fell as low as 89.07 cents, the least since Oct. 8. The currency was little changed at 81.04 yen from 81.05 last week. It touched 79.47 yen, also the weakest since Oct. 8.
New Zealand’s dollar fetched 71.51 U.S. cents, after earlier trading as low as 70.83, the weakest since Oct. 2, from 71.81 in New York last week. It dropped as low as 63.21 yen, a one-month low, before buying 64.46 yen.
Economic Growth
Asian equities declined 1.3 percent with the Standard & Poor’s 500 index dropping 4 percent to 1,036.19 in the week ended Oct. 30. S&P 500 futures traded as high as 1,037.90 today.
Australia’s government said today that the nation’s economy will expand 1.5 percent, compared with a May prediction of a 0.5 percent contraction, in the 12 months ending June 30, 2010. The government will have a cash deficit of A$57.7 billion ($51.8 billion), compared with A$57.6 billion forecast in May, Treasurer Wayne Swan told reporters today.
An index measuring the weighted average of prices for established houses in Australia’s eight capital cities climbed 4.2 percent in the third quarter from the second, the Australian Bureau of Statistics said in Sydney today.
Benchmark interest rates are 3.25 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.
Stop Loss
The South Pacific currencies earlier dropped to their weakest in more than three weeks against the yen as traders said so-called stop-loss orders were activated, said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
“Stop-loss orders set by margin traders were triggered almost on all cross-currencies, accelerating the pace of declines of these currencies,” against the yen, Kudo said. “For instance, such orders were triggered at below the 80.50 yen mark for Aussie.”
A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level.
Futures traders cut their bets that the Australian dollar will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. This is the first fall in bets on a gain in the Aussie since September.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 52,887 on Oct. 27, compared with net longs of 53,990 a week earlier.
Australian government bonds were little changed. The yield on 10-year notes fell one basis point, or 0.01 percentage point, to 5.49 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.096, or A$0.96 per A$1,000 face amount, to 98.272.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell for a sixth session to 4.47 percent.
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