Bloomberg News

Aussie Set for Second Weekly Drop on Stocks, China Output

May 11, 2012

The Australian dollar headed for a second weekly drop versus its U.S. counterpart as Asian equities fell, curbing demand for higher-yielding currencies.

The so-called Aussie is set to slide for a third week against the yen after JPMorgan Chase & Co. (JPM:US) disclosed a $2 billion trading loss, highlighting volatility in global financial markets. The Australian and New Zealand currencies weakened after reports showed gains industrial production and retail sales in China missed forecasts, damping the export outlook for the South Pacific nations.

“The latest round of selling in the Aussie is because of the China data,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The reports triggered concerns that China may be slowing, and there’s a bit of risk aversion at the moment.”

Australia’s dollar dropped to $1.0018, the weakest since Dec. 20, before trading 0.6 percent lower at $1.0021 at 4:24 p.m. in Sydney, set for a 1.6 percent drop this week. It fell 0.7 percent to 80.05 yen, having lost 1.5 percent since May 4. The Aussie may weaken to 95 U.S. cents by June, Lee said.

New Zealand’s currency declined 0.4 percent to 78.25 U.S. cents. It bought 62.48 yen, 0.5 percent below yesterday’s close. The so-called kiwi is poised for a 1.6 percent one-week drop versus the greenback. Against the yen, it has also retreated 1.6 percent since May 4.

The MSCI Asia Pacific Index (MXAP) of shares fell 1 percent today and is poised for a second week of losses.

Trade Failure

JPMorgan Chief Executive Officer Jamie Dimon said the company lost money on synthetic credit securities after an “egregious” failure in its chief investment office, which the bank says focuses on hedging.

“The Aussie is unfortunately a victim of any sign of global uncertainty,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc. “The catalyst for weakness was certainly the unfortunate news about JPMorgan’s losses.”

China’s industrial output rose 9.3 percent in April from a year earlier while retail sales increased 14.1 percent, a government report showed today. The figures compare with estimates for production to climb 12.2 percent and for sales to advance 15.1 percent.

China Inflation Eases

The inflation rate slowed last month, with consumer prices climbing 3.4 percent over the previous year, the National Bureau of Statistics said earlier today. The producer-price index declined 0.7 percent, the biggest slide since November 2009 and exceeding forecasts for a 0.5 percent drop.

China is Australia’s biggest trading partner and New Zealand’s second-largest export destination.

Australia’s 10-year bond yield fell six basis points to a record 3.279 percent. The rate on the 15-year security touched 3.611 percent, also an all-time low. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, advanced three basis points to 2.62 percent. It reached an all-time low of 2.46 percent on May 7.

The Aussie has lost 2.4 percent this year, the worst performance after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi has advanced 0.4 percent.

In New Zealand, the value of retail transactions on electronic cards climbed 0.8 percent in April after gaining 0.3 percent in the previous month, according to government report released today. The median forecast in a Bloomberg News survey was for a 0.5 percent advance.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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