Aussie Volatility Near 4-Month High Before RBA as Shares Tumble

The expected fluctuation of the Australian dollar rose toward the highest in more than four months as traders weighed prospects for the Reserve Bank to scrap its easing bias while emerging markets drop.

The Aussie was little changed after posting the biggest weekly gain in four weeks. Swap levels show there’s 97 percent odds the Reserve Bank of Australia will keep rates on hold at 2.5 percent today. The RBA will release its quarterly statement on policy on Feb. 7. New Zealand’s dollar fell to the lowest since September after Finance Minister Bill English said the government is “not comfortable” with the currency’s strength.

One-month implied volatility for the Aussie versus the greenback rose 24 basis points to 10.72 percent from yesterday, when it touched 10.80 percent, the most since Sept. 30. A basis point is 0.01 percentage point.

The Aussie declined 0.1 percent to 87.44 U.S. cents as of 12:29 p.m. in Sydney. The currency rose 0.1 percent to 88.45 yen from yesterday, when it dropped 1.1 percent. Australia’s dollar added 0.2 percent to NZ$1.0842, after touching NZ$1.0877 yesterday, the highest level since Jan. 3.

The kiwi fell 0.3 percent to 80.65 U.S. cents, after earlier touching the weakest since Sept. 11 at 80.52. The currency bought 81.57 yen from 81.63 yesterday, after reaching 81.47, the lowest since Nov. 12.

The BOJ’s easing has had the intended impact so far, Governor Haruhiko Kuroda told Japanese parliament today. Annual inflation will accelerate toward the central bank’s goal of 2 percent from the end of the current fiscal year in March 2015 to the following 12-month period, Kuroda said.

The 14-day relative strength index of dollar-yen was at 33 yesterday, the most oversold since June. The same gauge for euro-yen dropped to 27 yesterday, the lowest since June 2012. A reading below 30 is seen by some traders as a sign that an asset price has fallen too far, too rapidly and is poised to reverse.

(Source: Bloomberg)

Fed Officials Unite Behind Taper as Yellen Era Begins: Economy

Federal Reserve policy makers cut the pace of bond buying for a second straight meeting, uniting behind a strategy of gradual withdrawal from Ben S. Bernanke’s unprecedented easing policy as Janet Yellen prepares to succeed him as chairman.

The Federal Open Market Committee said it will trim monthly purchases by $10 billion to $65 billion, citing labor-market indicators that “were mixed but on balance showed further improvement” and economic growth that has “picked up in recent quarters.”

It was the first meeting without a dissent since June 2011, showing the tapering strategy has brought together policy makers concerned the Fed’s record $4.1 trillion balance sheet risks causing asset price bubbles with those who, like Vice Chairman Yellen, say more needs to be done to reduce unemployment.

Policy makers pressed on with a reduction in the purchases, put in place to speed a recovery from the worst recession since the Great Depression, even after payroll growth slowed in December and amid a rout in emerging-market currencies.

The Fed left unchanged its statement that it will probably hold its target interest rate near zero “well past the time” that unemployment falls below 6.5 percent, “especially if projected inflation” remains below the committee’s longer-run goal of 2 percent. Stocks remained lower and Treasuries gained.

(Source: bloomberg)

Aussie Gains to Be Capped as RBA Talks Down Currency

Australia’s central bank probably will succeed in capping the local currency this year as it seeks to boost an economy that’s losing full-time jobs at the fastest pace in two decades, Tokyo-based money manager Diam Co. said.

The Aussie’s biggest annual slide in five years in 2013 didn’t prevent Reserve Bank of Australia Governor Glenn Stevens from reiterating the need for a weaker currency. Diam, which manages about $120 billion, said Stevens probably won’t tolerate Aussie strength while growth remains muted. Daiwa SB Investments Ltd. said it won’t add further to its holdings until the RBA curbs efforts to verbally drive the exchange rate lower.

The Aussie traded at 88.22 U.S. cents as of 9:17 a.m. in Sydney after dropping yesterday to a three-year low of 87.77 cents. It slumped 14 percent in 2013, the most since a 20 percent slide in 2008.

Stevens said the exchange rate was “uncomfortably high” in statements accompanying policy decisions on Nov. 5 and Dec. 3. The RBA board has kept the benchmark rate at a record-low 2.5 percent, having reduced it by 2.25 percentage points since it embarked on the current easing cycle in November 2011.

(Source: Bloomberg)