Bloomberg News

Australian Dollar Nears 3-Month Low Versus Yen on Growth Outlook

June 28, 2011

June 28 (Bloomberg) -- The Australian dollar approached its lowest level in three months against the yen as concern that global growth is slowing prompted traders to bet the nation’s central bank will cut interest rates.

The so-called Aussie headed for losses against 12 of its 16 major peers this month before data forecast to show an index of U.S. home prices fell in April for a 10th straight month. New Zealand’s dollar weakened for a third day against the yen as Greek lawmakers debated tougher austerity measures that will determine whether the cash-strapped nation can avoid default.

“The global growth outlook has been shaved, with the loss of momentum in the U.S. economy and Greece’s debt worries,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The Aussie could encounter selling in the near term.”

Australia’s dollar fell to 84.35 yen as of 4:13 p.m. in Sydney from 84.48 yen in New York yesterday, when it dropped to 84.06, the least since March 29. The currency traded at $1.0447 from $1.0443 yesterday, when it reached $1.0391, the least since April 12. New Zealand’s dollar fell 0.3 percent to 64.96 yen and bought 80.45 U.S. cents from 80.56 cents yesterday.

The Reserve Bank of Australia may reduce its benchmark rate by 19 basis points over the next 12 months, compared with bets on a quarter-percentage-point increase on June 1, according to a Credit Suisse AG index based on swaps.

Benchmark rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

‘Buy on Dips’

“The market is expecting the RBA to be on hold for an extended period,” said Grant Turley, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “The lows are getting lower, but there’s still plenty of interest to buy on dips from central banks and exporters.”

Central banks including those in Russia and Thailand this year said they are adding Australian dollars to their reserves as they seek to diversify away from U.S. currency holdings.

Greek lawmakers vote tomorrow on the package of budget cuts and asset sales that’s needed before the nation can tap a fifth loan payment from last year’s 110 billion-euro ($157 billion) rescue. Failure to pass the austerity measures may lead to the euro area’s first sovereign default.

European Central Bank Executive Board member Juergen Stark said he doesn’t expect the international community to finance Greece further after July if the country doesn’t implement its austerity plan, Die Welt reported, citing an interview.

“Upside potential in the Aussie is likely to be capped until we navigate past the austerity vote in Greece this week,” said Tim Waterer, a currency dealer at CMC Markets in Sydney.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.31 percent from 3.33 yesterday. Australia’s benchmark 10-year bond yield rose to 5.05 percent from 4.999 percent yesterday, which was the lowest close since Oct. 12.

--Editors: Jonathan Annells, Rocky Swift

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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