Bloomberg News

Australian Bonds Gain; Local Dollar Falls to 6-Month Low

May 31, 2012

Australia’s bonds rose and its currency touched a six-month low as concern Spain will struggle to rescue its banks curbed demand for assets linked to growth.

Yields on Australian government debt maturing in two years or longer fell to records as a report showed home-building approvals unexpectedly dropped in April, boosting speculation the Reserve Bank will cut borrowing costs. New Zealand’s currency, nicknamed the kiwi, headed for its worst monthly loss since September against the U.S. dollar as Asian stocks slid. The drop in both South Pacific dollars was limited as technical indicators signaled recent declines were too rapid.

“Spain is becoming a huge problem,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “A lot of money is going to be needed to bail them out. The Aussie will inevitably be dragged down to a very important support area at 94.50 to 95 cents.” Support is an area on a chart where orders to buy may be clustered.

The 10-year Australian yield slid below 3 percent for the first time, to as low as 2.856 percent, the least in data compiled by Bloomberg going back to 1969. The rate on two-year notes fell to 2.108 percent, also an all-time low.

Australia’s dollar was at 97.21 U.S. cents as of 4:28 p.m. in Sydney from 97.04 cents yesterday. The Aussie earlier touched 96.74 cents, the weakest since Nov. 25. It declined 0.1 percent to 76.69 yen. New Zealand’s currency traded at 75.48 U.S. cents from 75.31. It bought 59.52 yen, 0.1 percent below yesterday’s close in New York.

Monthly Losses

The Aussie has slid 6.8 percent versus the dollar this month, set for its biggest decline since September. The kiwi has fallen 7.8 percent.

The MSCI Asia Pacific Index (MXAP) of shares declined 0.7 percent after the Standard & Poor’s 500 Index lost 1.4 percent yesterday.

The European Central Bank denied it has rejected a plan floated by the Spanish government to recapitalize Bankia group, the nation’s third-largest lender, saying it hasn’t been approached. The Spanish government itself has backtracked on an idea to recapitalize Bankia by injecting sovereign debt into its parent company that, according to the Financial Times, could then be used as collateral to borrow from the ECB.

Spain’s 10-year bond yield rose as high as 6.70 percent yesterday, approaching the 7 percent level that led to bailouts in Greece, Ireland and Portugal.

Australia’s dollar has fallen 2.6 percent this year, the worst performer after Sweden’s krona among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi has dropped 0.4 percent.

Building Permits

The number of permits granted to build or renovate houses and apartments in Australia fell 8.7 percent in April from a month ago, the statistics bureau in Sydney said today. That compares with a revised 6 percent increase in March and economist forecasts for a 0.3 percent gain.

The Aussie “is probably due for a bounce soon, but fresh falls in regional equities should keep the Australian dollar under pressure,” Westpac Banking Corp. (WBC) wrote in a report today.

The 14-day relative strength index for the Australian dollar versus the greenback was at 30.8, near the 30 level that some traders see as an indication that an asset may rebound after falling too quickly. The kiwi’s RSI against the U.S. currency was 33.1.

Interest-rate swaps data compiled by Bloomberg show traders are certain RBA policy makers will reduce the overnight cash rate from 3.75 percent on June 5, with about a 50 percent chance they will lower it to 3.25 percent.

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

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net


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