The Australian and New Zealand dollars fell against most major counterparts as Asian stocks dropped, sapping demand for higher-yielding currencies.
The so-called Aussie slid for a second day versus the greenback even after data showed Australia posted a narrower- than-estimated trade deficit and Reserve Bank Governor Glenn Stevens cautioned against monetary policy settings that could reignite asset bubbles. Demand for the South Pacific nations’ currencies was supported after China cut interest rates for the first time since 2008 as a means to sustain growth.
“Market sentiment hasn’t turned to risk-on yet, which is weighing on the Australian and New Zealand currencies,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co., a unit in Tokyo of Japan’s third-largest bank by market value.
The Australian dollar dropped 0.5 percent to 98.46 U.S. cents as of 4:32 p.m. in Sydney and declined 1 percent to 78.04 yen. New Zealand’s currency lost 0.6 percent to 76.26 U.S. cents and slid 1.1 percent to 60.43 yen.
The MSCI Asia Pacific Index (MXAP) of shares fell 1.3 percent.
Australia’s imports outpaced exports by A$203 million ($200 million) in April, compared with a revised A$1.28 billion shortfall in March, the Bureau of Statistics said today. The median estimate in a Bloomberg News survey of economists was for a deficit of A$900 million.
Stevens said the recent RBA cuts in interest rates will accelerate “the process of deleveraging” for borrowers who need or want to do so.
“Monetary policy has been cognizant of the changed habits of households and the process of balance-sheet strengthening, and has been set accordingly,” Stevens said in a speech today.
The RBA lowered its key rate by 25 basis points, or 0.25 percentage point, to 3.5 percent on June 5, after a reduction of 50 basis points in May.
The rate cut was followed by government data that showed the nation’s economy expanded in the first quarter at the fastest pace since June last year and Australian payrolls unexpectedly increased last month.
“The RBA’s assumptions were challenged this week,” Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada, wrote in a research note today. “The market is too aggressively priced for further rate cuts, in terms of both pace and magnitude, leaving the Australian dollar ripe for a correction higher.”
Traders are betting on a 66 percent chance the RBA will reduce its benchmark to 2.5 percent or lower by November, down from a 94 percent chance signaled on June 1, according to swaps data compiled by Bloomberg.
China’s Rate Cut
The Aussie has risen 1.5 percent against the greenback this week, and the New Zealand dollar has advanced 1.1 percent.
The People’s Bank of China said yesterday that the benchmark one-year lending rate will drop to 6.31 percent from 6.56 percent effective today. The one-year deposit rate falls to 3.25 percent from 3.5 percent. Banks will get extra freedom to set the amounts they pay on deposits and charge for loans.
“China’s rate cut is a positive” for the Australian and New Zealand currencies, said Daisaku Ueno, a senior foreign- exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, a unit of Japan’s biggest- listed bank. “China eased monetary policy to support its economy, which is being taken favorably in markets.”
China is Australia’s biggest trading partner and New Zealand’s second-largest export destination.
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