Bloomberg News

Aussie Dollar Touches 5-Month Low on Europe Debt Crisis

May 18, 2012

The Australian dollar touched a more than five-month low, extending declines to a third-straight week, as concern that the European debt crisis is spreading curbed demand for riskier assets.

New Zealand’s dollar was set to complete the biggest weekly loss in six months as Asian stocks extended a global slump after Moody’s Investors Service cut the credit ratings of 16 Spanish banks yesterday and Greece was downgraded by Fitch Ratings. Demand for the so-called Aussie and kiwi was supported as technical indicators suggested recent declines were excessive. Australian bond yields touched record lows.

“Growing debt and political turmoil in Europe is keeping the markets risk-off,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “Funds are escaping from risk currencies like the Aussie and kiwi.”

Australia’s dollar tumbled as much as 0.9 percent to 97.95 U.S. cents, the weakest level since Nov. 28, before trading at 97.98 at 3:30 p.m in Sydney. The currency weakened 0.9 percent to 77.68 yen. The New Zealand dollar slid 1 percent to 75.54 U.S. cents, after earlier falling to 75.48, the least since Dec. 19. It declined 1 percent to 59.90 yen.

The Aussie has dropped 2.2 percent against the greenback this week, while the kiwi has lost 3.5 percent, the sharpest slide since the five days ended Nov. 18.

The Australian dollar’s 14-day relative strength index against its U.S. counterpart fell to 22, below the 30 level that some traders see as signaling an asset may reverse declines. The gauge for New Zealand’s currency was at 17.

The MSCI Asia Pacific Index (MXAP) of stocks retreated 3.1 percent, while the MSCI World Index of developed-market shares fell 1.1 percent yesterday.

Bank Downgrades

Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s biggest banks, had their credit ratings cut three levels by Moody’s, which cited a recession and mounting loan losses as it downgraded 16 of the nation’s lenders.

The reductions followed Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt. Fitch lowered Greece’s long-term credit rating by one grade to CCC from B- yesterday, citing heightened risk that the nation may not be able to sustain its membership of the euro area.

The New Zealand dollar has weakened 6.1 percent in the past three months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Australia’s currency lost 5.2 percent, the second worst.

Australia’s bonds advanced, pushing the yield on all notes maturing in three years or longer to record lows. The 10-year rate dropped as much 20 basis points to 3.062 percent, while the 15-year yield touched 3.391 percent and the three-year rate fell to 2.346 percent.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped to a record low of 2.37 percent.

-- Editors: Jonathan Annells, Benjamin Purvis

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net

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


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