Bloomberg News

Aussie, N.Z. Dollars Weaken After China Factory Report

June 01, 2012

The Australian and New Zealand dollars fell after a report indicated China’s manufacturing industry is slowing more than economists had anticipated.

The so-called Aussie dropped to its lowest level since October and is headed for its fifth straight week of declines as concern that global growth is slowing and the European debt crisis is deepening damped demand for riskier assets. The yield on Australia’s benchmark 10-year note slid to the lowest on record as traders added to bets that the central bank will cut rates. New Zealand’s dollar, known as the kiwi, traded near its weakest this year as Asian stocks fell.

“The overall sentiment is likely to remain quite negative” for both the Australian and New Zealand currencies, said Emma Lawson, a currency strategist at National Australia Bank Ltd. (NAB) in Sydney. The China manufacturing number was “disappointing” and “it’s not surprising Aussie is off very sharply and testing new lows,” according to Lawson. China is Australia’s largest trading partner and New Zealand’s second- biggest export destination.

The Australian dollar dropped 0.5 percent to 96.88 U.S. cents as of 4:17 p.m. in Sydney, after earlier sliding as low as 96.49, the weakest since Oct. 6. It’s set for a 0.7 percent decline since May 25, extending its run of weekly losses to five, the most since October 2006. The Aussie fell 0.3 percent to 76.01 yen.

New Zealand’s currency declined 0.3 percent to 75.18 U.S. cents, poised for a 0.3 percent weekly drop. The currency traded as low as 74.57 cents on May 23, its weakest this year. The kiwi was at 58.98 yen from 59.03 yesterday.

Yields Falling

The Australian 10-year yield tumbled as much as nine basis points to 2.832 percent, the least in data compiled by Bloomberg going back to 1969.

The MSCI Asia Pacific Index of stocks dropped 1 percent, its third consecutive day of losses.

A purchasing managers index for China’s manufacturing industry declined to 50.4 in May from 53.3 the previous month, according to a report from the country’s statistics bureau and logistics federation. Economists surveyed by Bloomberg News had estimated a figure of 52. Readings above 50 indicate an expansion. A separate private gauge released by HSBC Holdings Plc came in at 48.4 from 49.3 the previous month.

The Australian Industry Group and PricewaterhouseCoopers published a similar measure, showing a further contraction of Australia’s manufacturing industry. Their index slid to 42.4 in May from 43.9 in April.

Data Driven

A gauge of U.S. manufacturing is also scheduled for release today, with the Institute for Supply Management Inc.’s index projected to drop to 53.8 in May from 54.8 the previous month, according to the median estimate of economists surveyed by Bloomberg News. The U.S. government’s monthly jobs report is also due and is predicted to show the unemployment rate remained steady at 8.1 percent, while personal spending data will also be published.

The markets are “very much data driven at the moment because of the huge number of really important data releases that we have tonight,” said National Australia Bank’s Lawson.

The financial turmoil in Europe and the risks to global growth have weighed on the Australian currency as speculation mounts that the Reserve Bank of Australia will lower its key lending rate further, having reduced it to 3.75 percent from 4.75 percent since it began cutting borrowing costs in November.

RBA Rates

“The interest rate cycle in Australia is certainly dovish,” said Kurt Magnus, executive director of currency sales at Nomura Holdings Inc. in Sydney. “If we close under 96.90 U.S. cents tonight, the Australian dollar can go down to 93.80.”

Traders are betting that a rate cut at the RBA’s June 5 meeting is a certainty, with a more than 55 percent chance that they will reduce the benchmark by half a percentage point, according to swaps data compiled by Bloomberg.

In New Zealand, the two-year swap rate, a fixed payment made to receive floating rates, fell as low as 2.36 percent, the least on record.

New Zealand’s terms of trade index fell for a third quarter as a stronger currency and weak global markets curbed returns on exports. The index dropped 2.3 percent in the first three months of 2012 after declining 1.4 percent in the previous period, Statistics New Zealand said in a statement in Wellington today.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

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


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