Monday, February 4, 2008

Australian Dollar Trades Near 3-Month High Before Rate Decision

By David McIntyre

Feb. 5 (Bloomberg) -- The Australian dollar traded near the highest level in three months as traders bet the central bank will raise borrowing costs by a quarter percentage point at a meeting today.

The local dollar, known as the Aussie, is the best performer among the 17 most-active currencies in February on rising odds the Reserve Bank of Australia will increase its 6.75 percent benchmark. The currency pared gains after a government report showed building approvals fell in December by four times as much as economists forecast.

``The Aussie can push a little bit higher,'' said Joanne Masters, a currency strategist at Macquarie Bank Ltd. in Sydney. ``On the confirmation of a rate hike and what will presumably be a hawkish statement, you could see more on the upside.''

The Australian dollar reached 91.01 U.S. cents, the highest since Nov. 9, before trading at 90.56 cents at 11:57 a.m. in Sydney from 90.78 cents late in Asia yesterday. It may reach 91.60 cents today, Masters said.

Against the yen, the currency touched 97.21, the strongest since Jan. 15, before trading at 96.67 from 97.04 yesterday.

The Aussie has advanced 1.1 percent versus the U.S. dollar this month as the odds of the RBA raising borrowing costs to 7 percent rose to 89 percent, according to an index calculated by Credit Suisse Group based on trading in interest-rate swaps.

The odds increased yesterday after an index measuring Australian consumer prices climbed at the fastest annual pace in 20 months in January, according to a report released by TD Securities Ltd. and the Melbourne Institute.

Sales, Building Approvals

The RBA has increased borrowing costs twice in the last six months, helping the currency gain 6 percent in that time. An increase in Australia's borrowing costs would take the country's rate advantage over the U.S. to 4 percentage points, the widest margin in more than three years. Macquarie's Masters is forecasting the currency to equal November's 23-year high of 94 cents by June.

Governor Glenn Stevens and his board will increase the overnight cash rate target to an 11-year high of 7 percent, according to all 27 economists surveyed by Bloomberg News. The rate decision and statement will be released at 2:30 p.m. in Sydney.

The currency fell after the Bureau of Statistics said the number of permits granted to build or renovate houses and apartments slumped 16 percent from November, when they rose a revised 8.2 percent. The median estimate of 25 economists surveyed by Bloomberg News was for a 4 percent drop.

A separate report showed retails sales advanced 0.5 percent in December from the previous month, when they climbed 0.8 percent. The median estimate of economists was for a 0.6 percent increase.

Australian government bonds were little changed, with the yield on the two-year benchmark holding at 6.76 percent, close to the highest in a month. The price of the 7.5 percent bond maturing in September 2009 was at 101.09. A basis point equals 0.01 percentage point.

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