Bloomberg News

Aussie Dollar Falls After RBA Rate Cut, S&P Warns on Euro Fund

December 06, 2011

Dec. 6 (Bloomberg) -- The Australian dollar fell against most of its major peers after the Reserve Bank of Australia cut interest rates by 25 basis points for a second straight month.

New Zealand’s dollar also declined as Standard & Poor’s put Europe’s bailout fund on watch for a potential credit downgrade. The RBA reduced its key rate to 4.25 percent in its first back- to-back easing since 2009.

“We’re still of the view that the RBA has scope to potentially ease towards 3.75 percent by the end of 2012,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The RBA continues to watch data, the global- growth backdrop and global headwinds emanating from the European debt crisis.”

The Australian dollar dropped 0.4 percent to $1.0232 at 1:16 p.m. in New York. It earlier fell as much as 1.1 percent to $1.0156. The currency declined 0.5 percent to 79.53 yen.

New Zealand’s currency, nicknamed the kiwi, fell 0.1 percent to 77.93 U.S. cents. It weakened 0.2 percent o 60.57 yen.

Today’s rate decision was predicted by 13 of 25 economists surveyed by Bloomberg News. The rest forecast no change.

“Financing conditions have become much more difficult, especially in Europe,” RBA Governor Glenn Stevens said in a statement accompanying the decision. “This, together with precautionary behavior by firms and households, means that the likelihood of a further material slowing in global growth has increased.”

‘Surprising’ Reaction

The Aussie dollar’s reaction to the policy announcement was “a little surprising given the decision was largely priced in,” Annette Beacher, economist at TD Securities Ltd. in Singapore, wrote in a research note today. Beacher projected the Australian dollar to fall to parity with the greenback and stay close to that level for the next six months.

A Credit Suisse Group AG index based on swaps shows traders are betting that Australia’s central bank will cut rates by 142 basis points during the next 12 months. That compares with wagers for 101 basis points of cuts indicated on Nov. 2.

S&P added the European Financial Stability Fund today to the 15 euro nations placed on a negative outlook yesterday before a summit meeting this week.

--With assistance from Allison Bennett in New York. Editors: Paul Cox, Dennis Fitzgerald

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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