Bloomberg News

Aussie Dollar Slides as Stocks Fall Before CPI Report

July 20, 2012

Australia’s dollar fell, snapping five-days of gains, as a decline in Asian stocks sapped demand for riskier assets.

The so-called Aussie declined against most of its 16 major peers before data next week forecast to show consumer prices grew at the slowest pace since June 1999, increasing scope for the Reserve Bank of Australia to lower borrowing costs. Losses in the Australian and New Zealand dollars were limited ahead of U.S. data that may add to the case for more monetary stimulus from the Federal Reserve.

The consumer price data “poses some downside risks for the Aussie,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The latest employment data was weak, so if we start to see inflation slowing as well, that could raise expectations for an RBA rate cut next month.”

The Australian dollar fell 0.3 percent to $1.0401 as of 4:19 p.m. in Sydney, trimming its weekly advance to 1.7 percent. The Aussie yesterday rose as much as 0.8 percent to $1.0444, the strongest level since April 30.

New Zealand’s dollar slid 0.2 percent to 80.18 U.S. cents, paring its five-day gain to 0.7 percent. The so-called kiwi yesterday touched 80.55 cents, the strongest since July 5.

The MSCI Asia Pacific Index (MXAP) of stocks lost 0.8 percent.

Inflation Report

In Australia, consumer prices probably climbed by 1.3 percent last quarter from the same three-month period last year, according to the median estimate of economists surveyed by Bloomberg News before the Bureau of Statistics releases figures on July 25. That would match the slowest annual pace since June 1999.

Interest-rate swaps indicate a 65 percent chance the RBA will lower its benchmark interest rate by 25 basis points, or 0.25 percentage point, at its next meeting on Aug. 7, according to data compiled by Bloomberg. That compares with a 62 percent chance indicated yesterday.

Australian government bonds climbed, with the yield on the benchmark 10-year security dropping one basis point to 2.93 percent.

U.S. gross domestic product probably expanded at an annualized 1.5 percent in the second quarter, the slowest pace since June 2011, according to economists surveyed by Bloomberg before the Commerce Department publishes figures on July 27.

“The U.S. economy is losing momentum and there’s growing expectation that the Fed will do more stimulus,” said Peter Dragicevich, a Sydney-based foreign-exchange economist at Commonwealth Bank of Australia. (CBA) “You also had a solid increase in commodity prices, and that’s also helping support both the Aussie and the kiwi.”

-- Editors: Benjamin Purvis, Rocky Swift

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net;

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


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