Geoffrey Rogow
SYDNEY (Dow Jones)–The Australian dollar remained near its post-float highs against the U.S. dollar Friday, drifting between slight gains and losses, in the last session of the year.
Australian bonds rallied on both ends of the curve, reflecting some concern about weak housing and business credit data in the country.
After a quiet few weeks on the local economic front, Friday provided some downbeat figures. The RP Data-Rismark report on Australian home prices showed that capital city dwelling prices fell 0.2% in November. In addition, even though November private-sector credit increased slightly, credit to the business sector fell for the fifth straight month.
In the currency markets, however, the figures did little to quell a banner year for the Australian dollar, which has rallied for roughly six months and will close the year near its highest levels since the currency was floated.
At 0300 GMT, the Australian dollar traded at US$1.0169, down slightly from US$1.0171 late Thursday. The currency hit its post-float high of US$1.0197 in Thursday afternoon action in Sydney.
Against the Japanese yen, the Australian dollar traded at Y82.90, up from Y82.85 late Thursday.
Sue Trinh, a strategist with RBC Capital Markets in Hong Kong, said the continuous surge in the currency, especially in the light-volume trading of the past few weeks, shows the move is completely detached from fundamentals. The strategist noted that looking at the historical correlation between the spread of the U.S. and Australian 2-year bonds suggests the Australian dollar should actually be around US$0.9920.
“The Aussie move is just completely inconsistent with the move in bill futures,” said Trinh.
Still, Trinh added “the bias today is still upwards, given month-end flows and month-end rebalancing. Given the moves this year, that suggests some U.S. dollar selling will flow through the foreign exchange markets.”
While foreign exchange traders shrugged off the Australian economic data, the figures did carry some weight with bonds.
Spiros Papadopoulos, senior market economist with National Australia Bank, said he was particularly concerned about the housing data, noting that house prices are now at the same levels seen in the early part of the year, with expected further interest rate increases likely leading to soft home prices through 2011.
“Today’s data is just further evidence for the (Reserve Bank of Australia) that there is no pressure to hike again in the near term. Higher interest rates through 2010 have seen house price growth ease and credit growth remains weak,” said Papadopoulos.
In the interest-rate futures market Friday, the 3-year bond rose four ticks to 94.70, while the 10-year bond rose six ticks at 94.435.
Source: www.wsj.com
