Bloomberg News

Aussie, N.Z. Dollars Drop as Gauge Highlights Divergence

May 01, 2012

The Australian and New Zealand dollars stayed lower versus their U.S. counterpart after a factory gauge unexpectedly rose in April, highlighting a divergence between U.S. economic performance and that of the South Pacific nations.

The Aussie dropped by the most in almost two months after the central bank cut interest rates more than forecast yesterday, damping appetite for the currency. The Reserve Bank of Australia lowered its key rate to 3.75 percent, from 4.25 percent, compared with a projection in a Bloomberg News survey for a reduction to 4 percent.

“The yield premium the Aussie offers has been undercut,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Whenever a central bank moves by more than 25 basis points, clearly the ground is shifting very quickly beneath it in ways that they didn’t expect.”

The Australian dollar slid 0.9 percent to $1.0334 yesterday in New York, falling against all of its 16 most-traded counterparts. It lost as much as 1.2 percent, the biggest intraday drop since March 20. The Aussie fell 0.6 percent to 82.73 yen and reached 82.11 yen, the lowest level since Feb. 7.

New Zealand’s dollar, nicknamed the kiwi, dropped 0.4 percent to 81.53 U.S. cents. It was the second-biggest loser among major currencies after the Aussie. The kiwi was little changed at 65.28 yen after falling earlier to 64.77 yen, the weakest since Feb. 16.

The Institute for Supply Management’s U.S. factory index rose to 54.8 in April from 53.4 a month earlier, the Tempe, Arizona-based group’s report showed yesterday. Economists in a Bloomberg survey forecast a decline to 53. Readings greater than 50 signal growth.

Rate Reduction

The RBA’s cut of 50 basis points, or 0.5 percentage point, to its overnight cash rate target was the deepest in three years. Two of 29 economists surveyed by Bloomberg News predicted the move, while the other 27 forecast a 25 basis-point reduction to 4 percent.

The central bank eased monetary policy a week before the government delivers a budget designed to end four years of deficits by cutting government spending by the equivalent of about 2.5 percent of gross domestic product. The RBA wants to buttress a housing market in which prices have fallen for five straight quarters, support jobs and boost confidence that has weakened among consumers who are saving more.

Wages in New Zealand rose 0.5 percent in the first three months of the year from the fourth quarter, when they increased 0.7 percent, Statistics New Zealand’s reported yesterday. The data added to signs of modest economic growth this year.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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