Bloomberg News

Australian Dollar Drops as Deadlock on Greece Damps Risk Demand

June 15, 2011

June 15 (Bloomberg) -- The Australian dollar fell versus its U.S. counterpart, erasing earlier gains, as the failure of European Union officials to end a deadlock on a second bailout for Greece damped demand for higher-yielding assets.

The South Pacific currency earlier rose after Reserve Bank of Australia Governor Glenn Stevens said policy makers will need to raise interest rates at some stage. New Zealand’s dollar weakened against most major peers as stocks and raw materials tumbled after Greek Prime Minister George Papandreou was told by the opposition to resign.

“The Aussie is more and more dependent on risk appetite than domestic fundamentals,” said Jessica Hoversen, a New York- based analyst at the futures broker MF Global Holdings Ltd. “The comments from Stevens were hawkish, but he is probably signaling for a rate hike after July because he wants to see what second-quarter CPI says.”

Australia’s dollar dropped 0.9 percent to $1.0588 at 12:18 p.m. in New York, from $1.0685 yesterday, after rising earlier as much as 0.3 percent. The currency depreciated 0.6 percent to 85.46 yen, from 86 yen.

New Zealand’s dollar fell 1.2 percent to 80.83 U.S. cents and touched 80.81 cents, the weakest level since June 3. It declined 0.9 percent to 65.24 yen.

The Standard & Poor’s 500 Index dropped 1.1 percent and the Thomson Reuters/Jefferies CRB Index of commodities fell 0.9 percent.

Stevens also said the underlying rate of inflation “is more likely to rise than fall” in the next few years.

Price Data

“New information will, as always, be important in our monthly assessments of what monetary policy needs to do,” Stevens said in a speech in Brisbane. “As far as prices are concerned, we will get another comprehensive round of data in late July.” Data on the consumer price index is due July 26.

Stevens has kept the cash-rate target at 4.75 percent for the past six meetings, the longest pause since 2007. The central bank will boost its benchmark rate by 14 basis points, or 0.14 percentage point, over the next 12 months, according to a Credit Suisse AG index, up from 10 basis points yesterday.

European finance ministers agreed yesterday to reconvene on June 19 after failing to reconcile a German-led push for bondholders to share part of the cost of a new Greek aid plan.

Papandreou was told to step aside and let the nation’s president name a so-called technical government to renegotiate the terms of the nation’s rescue package, said an official in the opposition New Democracy Party.

--With assistance from Michael Heath in Sydney and Allison Bennett in New York. Editors: Greg Storey,

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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