Bloomberg News

Aussie Dollar Snaps Advance Against Yen on European Debt Concern

October 19, 2011

Oct. 19 (Bloomberg) -- The Australian dollar snapped an advance against the yen from yesterday on concern Europe’s leaders won’t be able to deliver a resolution to halt the debt crisis before next month’s Group of 20 nations leaders’ meeting.

New Zealand’s dollar failed to extend an advance against its U.S. counterpart after Spain’s credit rating was cut by Moody’s Investors Service. Demand for the so-called Aussie was supported on signs the economy remains resilient and as Asian stocks extended a global rally.

“I don’t expect any sort of miracle answer at the G-20,” said Thomas Averill, a director at the foreign-exchange and interest-rate risk management company Rochford Capital in Sydney. “There’s quite a lot of nervousness out there and people are selling the Aussie and buying the U.S. dollar on rallies.”

Australia’s dollar traded at 78.80 yen as of 3:12 p.m. in Sydney from 78.85 yen in New York. It bought $1.0273 from $1.0263 yesterday, when it advanced 1 percent. New Zealand’s dollar declined 0.2 percent to 61.03 yen. The currency was little changed at 79.58 U.S. cents.

Moody’s reduced Spain’s credit ranking to its fifth-highest investment grade, cutting it by two levels to A1 from Aa2, with the outlook remaining negative, the company said in a statement.

EU Summit, G-20

German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged last week to present a plan to fix Europe’s debt crisis when the G-20 leaders convene in Cannes, France on Nov. 3. The group’s finance ministers and central bankers meeting last weekend set an Oct. 23 summit of European leaders as a deadline to agree on a comprehensive solution.

Losses in the Australian dollar were limited on signs the nation’s economy and banks remain solid.

“Australian banks’ funding structures are considerably more resilient to periods of stressed markets than they were previously,” Reserve Bank Assistant Governor Guy Debelle said in prepared remarks for a speech in Sydney today. “We are not seeing the same sort of stresses for the Australian banks, as are present for some of the European banks.”

A leading index of future economic growth in Australia advanced 0.8 percent in August from a month earlier to 287, Westpac Banking Corp. and the Melbourne Institute said in a statement in Sydney today. Westpac’s leading index tracks eight gauges of activity, including company profits and productivity, to give an indication of how the economy will perform over the next three to nine months.

“We’ve really seen some terrific upside data surprises in the last couple of weeks,” said Annette Beacher, head of Asia- Pacific research at TD Securities in Singapore. “If the market does revert back to economic fundamentals, I still think Australia is looking on top, so Aussie should likely outperform euro, U.S. dollar, and kiwi dollar.”

The MSCI Asia Pacific Index of shares advanced as much as 0.9 percent after MSCI’s World index rose 0.3 percent yesterday.

--Editors: Garfield Reynolds, Rocky Swift

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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


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