Bloomberg News

Australia Dollar Falls as Slowing Inflation Spurs Rate-Cut Bets

October 26, 2011

Oct. 26 (Bloomberg) -- The Australian dollar declined for a second day against its U.S. counterpart after a report showing slower growth in consumer prices fueled speculation that the Reserve Bank will cut interest rates.

The Aussie weakened against the majority of its 16 most- traded peers as raw materials fell for the first time in four days. New Zealand’s dollar, nicknamed the kiwi, fell versus the yen and dollar after a private report showed business confidence declined in October.

“Bets for a precautionary rate cut by the RBA have increased, and that’s why we’re seeing some selling of the Australian dollar,” said Thomas Averill, a director at the currency and interest-rate risk management company Rochford Capital in Sydney.

The Australian dollar dropped 0.8 percent to $1.0349 at 12:37 p.m. New York time. It sank 0.8 percent to 78.71 yen. The New Zealand dollar depreciated 0.6 percent to 60.29 yen. It declined 0.6 percent to 79.27 U.S. cents.

The Standard & Poor’s GSCI Index of 24 raw materials dropped 1 percent in its first decline since Oct. 20.

Australia’s consumer price index rose 0.6 percent in the third quarter from the previous three months, when it gained 0.9 percent, the Bureau of Statistics said in Sydney today. Core inflation, as measured by the central bank’s so-called trimmed mean gauge, rose 0.3 percent from the previous quarter and 2.3 percent from a year earlier. Economists forecast a quarter-to- quarter gain of 0.6 percent and an annual rise of 2.7 percent.

Rate Bets

Traders are betting the Reserve Bank of Australia will lower its key interest rate by 121 basis points, or 1.21 percentage points, over the next 12 months, according to a Credit Suisse Group AG index based on swaps. That compared with wagers yesterday for 102 basis points of easing.

A report showed business confidence declined in New Zealand. A net 13.2 percent of companies expect the economy will improve over the next 12 months, down from 30.3 percent in September, according to a survey by ANZ National Bank Ltd.

--With assistance from Allison Bennett in New York. Editors: Greg Storey, Paul Cox

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

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


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