Wednesday, 12 December 2012 10:22
SYDNEY/WELLINGTON: The Australian and New Zealand dollars stretched to multi-month highs on the greenback and yen on Wednesday on expectations of further stimulus in the United States and Japan.
The kiwi dollar rallied to 69.38 yen, its highest since October 2009, underpinned by a return of carry trades.
With the Bank of Japan under pressure to take bold action at next week's policy meeting, investors are keen to borrow in yen to buy higher yielding currencies.
Traders said the kiwi soared on the back of demand from domestic exporters scrambling to hedge against further strength, along with model funds aiming to test 70.50, a key level given that it is roughly the currency's 10-year average.
"We're looking at more aggressive stimulus in Japan, and the Japanese will get into a fight for currency weakness, if you like, with the US, and we can see dollar/yen move towards 85," said Alex Sinton, chief FX dealer at ANZ.
The kiwi has surged 16 percent versus the yen and 8 percent versus the dollar so far this year, on the view that New Zealand's economy is faring better than other countries. The Aussie scaled an 8-1/2 month peak of 87.03 yen and looked on target to test 88.62, this year's high touched in March. It has gained more than 10 percent against the Japanese currency this year.
Against the US dollar, the Antipodean currencies rallied to multi-month peaks, buoyed by stronger equities across Asia.
The Aussie rose to $1.0541, its best in nearly three-months, from $1.0479 in late local trade on Tuesday.
The kiwi climbed to $0.8398, a top not seen since early March, having broken key resistance in the mid-$0.8300 region. Traders said this opened the door to a test of the year's high of $0.8471.
Risk assets found support on hopes of a resolution in the US fiscal crisis and expectations of more stimulus from the Federal Reserve, which ends its two-day policy meeting later on Wednesday.
The US central bank is widely expected to announce monthly purchases of $45 billion in US Treasuries, but it could surprise by doing more. Such an outcome would likely boost further the Antipodean currencies.
"We remain long-term bullish on the Australian dollar given the continued quantitative easing in the US," said Steve Goldman, a portfolio manager at fixed income fund Kapstream Capital.
He forecast the US dollar to weaken over coming years, particularly against currencies in Asia where he sees growth.
"We have a recovering global growth and Asia will benefit from that more than the rest of the world," he said, seeing the Aussie shooting up as high as $1.20 in the long-run.
The Aussie, which has scaled a post-float peak of $1.1081 in 2011, has gained 3 percent this year and last changed hands at $1.0525.
Charts show a clear break above $1.0600 could result in further notable gains, with support lined up around Tuesday's low of $1.0485.
Also underpinning the Aussie was an upward revision in the government forecast for iron ore output in fiscal 2013. Prices for iron ore, Australia's top export earner, have climbed to their highest since July, backed by buying from China.
The forecast revisions helped offset a fall in Australian consumer confidence in December as households fretted on the outlook for the national economy and finances.
Improving risk sentiment put pressure on Australian government bond futures, with the three-year bond contract 0.05 points lower at 97.340. The 10-year contract slipped 0.075 points to 96.880.
New Zealand government bonds were mostly weaker, pushing yields 2.5 basis points higher at the short end of the curve.
Center>Copyright Reuters, 2012