Bloomberg News

Australian, New Zealand Dollars Drop Amid European Debt Concern

November 16, 2011

Nov. 16 (Bloomberg) -- The Australian and New Zealand dollars fell for a third straight day as concern Europe’s financial woes are deepening sapped demand for riskier assets.

New Zealand’s currency slid versus its U.S. counterpart to the lowest in almost six weeks as the extra yield investors demand to hold euro-area bonds instead of German bunds was at almost euro-era highs. The yield on Australia’s three-year government bond dropped to the lowest in 2 1/2 years after a report showed growth in wages in the nation slowed.

“We’re very concerned about what’s happening in Europe,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The situation in the bond market looks very grave. The clock is ticking on the Aussie.”

The Aussie dollar depreciated 0.4 percent to $1.0137 at 12:45 p.m. New York time. New Zealand’s dollar declined 0.3 percent to 76.88 U.S. cents after earlier touching 76.26, the lowest level since Oct. 6. The Australian dollar may decline to parity with its U.S. counterpart this week, according to Callow.

Australia’s wage price index, which measures hourly pay rates excluding bonuses, rose 0.7 percent in the third quarter from the previous three months, when it gained 0.9 percent, the statistics bureau said today. The median forecast in a Bloomberg News survey of economists was for a 0.9 percent increase.

“Wage cost pressures have been easing,” Roland Randall, an economist at TD Securities Inc. in Singapore, wrote in a research note today. They are “unlikely to be an impediment to further easing” by the Reserve Bank of Australia.

Traders are betting the RBA will slash interest rates by 153 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps. That compares with wagers for 101 basis points of cuts indicated on Nov. 2.

The Reserve Bank of New Zealand is predicted to trim borrowing costs by 7 basis points over the same period. Traders expected an increase of 43 basis points in the RBNZ cash rate on Oct. 28.

--With assistance from Allison Bennett in New York. Editors: Dennis Fitzgerald, Greg Storey

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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