Bloomberg News

Australian, N.Z. Dollars Set for Weekly Drops Before EU Summit

October 20, 2011

Oct. 21 (Bloomberg) -- The Australian and New Zealand dollars are set for the biggest weekly declines against the yen in a month on concern European leaders will struggle to resolve the region’s debt crisis.

The South Pacific currencies are poised to drop against the dollar this week after commodities prices fell, sapping demand for riskier assets. Demand for the so-called Aussie was supported after a report showed Australia’s export prices gained in the third quarter.

“It is all about Europe, nothing else matters,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “The market might be slightly short risk, short Aussie and short euro going into the weekend. The market is ready to be disappointed.”

The Australian dollar traded at 78.45 yen as of 2:21 p.m. in Sydney from 78.58 yen yesterday in New York. It’s set for a 1.8 percent weekly drop, the most since the week ended Sept. 23. The Aussie was at $1.0216 from $1.0228 yesterday, poised for a 1.2 percent decline this week.

New Zealand’s currency, traded at 60.89 yen from 60.93 yen. It’s on track to fall 2.1 percent this week, the most since the five-day period ended Sept. 23. The so-called kiwi bought 79.25 U.S. cents from 79.30.

The Thomson Reuters/Jefferies CRB Index of raw materials fell 1 percent yesterday, extending the loss for the week to 3 percent. The MSCI Asia Pacific Index was little changed after falling 1.9 percent yesterday.

Europe Deadlock

European Union leaders, who are gridlocked on how to solve the region’s sovereign debt crisis, will hold a second summit on Oct. 26, in addition to a meeting this weekend, in an effort to bridge differences between Germany and France.

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed to ask euro-area leaders to assess a “comprehensive and ambitious” package of measures to address the debt crisis this weekend in order to agree on the measures by Oct. 26, the German government spokesman Steffen Seibert said via e-mail.

European governments may deploy as much as 940 billion euros ($1.3 trillion) to contain the debt crisis by combining the temporary and planned permanent rescue funds, two people familiar with the discussions said.

Worst Performers

The New Zealand dollar fell 1.2 percent in the past week, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Australian dollar is the second worst performer after dropping 0.8 percent over the same period.

The value of Australian exports rose in the three months through September, a government report showed today. The export price index advanced 4 percent from the second quarter, the Bureau of Statistics said in a report in Sydney today. Import prices were unchanged. Economists in a Bloomberg News survey forecast a 3.6 percent gain in exports and a 0.5 percent rise in imports.

“The prospects for the Australian dollar remain robust” over the medium term, Barclays Capital wrote in a report today. “Key supporting factors are likely to be positive interest rate differentials, elevated terms of trade and resilient economic growth in Asia.”

Benchmark interest 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.

-- Editor: Benjamin Purvis

To contact the reporters 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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