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The Australian and New Zealand dollars fell on speculation Europe’s debt crisis will continue to increase the region’s borrowing costs, curbing demand for riskier assets.
The so-called Aussie slid versus its Japanese counterpart before Spain and Italy sell debt this week and European leaders hold a June 28-29 summit. New Zealand’s currency, nicknamed the kiwi, dropped against the greenback as Asian stocks declined, extending U.S. equities’ first five-day loss in three weeks.
“Demand will still be there in European bond auctions, but obviously the yields that they pay are still very high,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The Aussie and kiwi are caught between ongoing fears of contagion, slower global growth and expectations of further quantitative policy measures abroad.”
The Australian dollar lost 0.3 percent to $1.0035 as of 3:51 p.m. in Sydney. It slid 0.6 percent to 80.46 yen. New Zealand’s currency fell 0.4 percent to 78.78 U.S. cents. The kiwi bought 63.16 yen, 0.7 percent lower than its June 22 close.
The Aussie has dropped 1.7 percent versus the U.S. dollar since Dec. 31. The kiwi has advanced 1.4 percent.
Australia’s 10-year yield fell four basis points, or 0.04 percentage point, to 3.01 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined two basis points to 2.72 percent.
The MSCI Asia Pacific Index of shares lost 0.5 percent. The Standard & Poor’s 500 Index (SPX) declined 0.6 percent last week, the first five-day loss since the period ended June 1.
Spain is scheduled to sell three- and six-month bills tomorrow, while Italy is set to auction inflation-linked securities maturing in 2016 and 2026, as well as up to 3 billion euros ($3.8 billion) in zero-coupon bonds.
Spanish 10-year yields closed at 6.38 percent at the end of last week, after surpassing the 7 percent level that prompted Greece, Ireland and Portugal to seek international rescues.
European Union heads of state will gather in Brussels this week. That follows a June 22 meeting where German Chancellor Angela Merkel, Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy said they would lobby their EU partners to accept a growth plan of as much as 130 billion euros, or about 1 percent of the trading bloc’s economic output.
Futures traders trimmed bets that the Australian dollar will depreciate against the greenback, according to data from the Commodity Futures Trading Commission last week.
The difference in the number of wagers on a decline in the Aussie compared with those on a gain, known as net shorts, was 3,458 in the five days ended June 19, down from 45,459 in the previous period.
“The Australian dollar remains beholden to the ongoing European saga, with relatively large swings in the currency on the back of alternating sentiment,” Peter Jolly, the Sydney- based head of market research at National Australia Bank Ltd. (NAB), wrote in a report today. “This pattern should continue in the very near term, as we head into the European leaders’ summit.”
The Aussie has risen 2.2 percent in the past month, the second-best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi was the biggest gainer, advancing 4 percent in the same period.
Russia’s central bank started buying Australian dollars last week, Reuters reported, citing an unidentified person familiar with the matter. The bank will eventually raise its holdings of the Australian currency to above 1 percent of Russia’s foreign-exchange reserves.
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