Bloomberg News

Australian, N.Z. Dollars Fall Amid European Debt Concern

July 23, 2012

The Australian and New Zealand dollars slid for a second day as Asian stocks extended a global equity rout amid concern Europe’s debt crisis is worsening, reducing demand for higher-yielding assets.

The so-called Aussie dollar weakened against the yen before data this week forecast to show Australian inflation eased, giving the Reserve Bank more room to consider reductions in borrowing costs. New Zealand’s currency, known as the kiwi, dropped versus all 16 major peers after Spanish yields rose to a euro-era record and on renewed prospects Greece will exit the currency union.

“The European crisis is far from solved and those concerns are weighing on the market,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest- rate risk-management company. “Risk sentiment is very fragile and very volatile. You’ll likely to see the Aussie and the kiwi follow equities south.”

The Australian dollar fell 0.7 percent to $1.0308 as of 4:20 p.m. in Sydney. The Aussie lost 1.2 percent to 80.49 yen. New Zealand’s dollar declined 0.9 percent to 79.26 U.S. cents. It dropped 1.4 percent to 61.90 yen.

Australia’s government bonds advanced, pushing the yield on the benchmark 10-year security down by as much as 12 basis points, or 0.12 percentage point, to 2.80 percent, the lowest since June 4.

The MSCI Asia Pacific Index (MXAP) of shares fell 1.8 percent, following a 1.3 percent decline in the MSCI World Index (MXWO) on July 20.

Spain Yields

Spain’s benchmark 10-year yield climbed as high as 7.389 percent, a euro-era record. The 7 percent level was the threshold for bailouts of Greece, Ireland and Portugal. Spain is due to sell bills tomorrow maturing in three and six months after the region of Valencia said last week it would tap an emergency-loan fund created by the government.

Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- will arrive in Athens tomorrow amid concern the country will be unable to meet its commitments and reluctance among euro-area states to put up more funds should it fail.

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.

Producer Prices

The statistics bureau said today that producer prices rose 1.1 percent in the three months ended June 30 from the second quarter of 2011. That is the lowest growth since June 2010. Economists in a Bloomberg poll expected a 1 percent rise.

“The market is looking for an indication on whether inflation is sufficiently contained to allow the RBA to cut further,” said Rochford’s Averill. “If it comes out very soft, it would certainly be another reason to sell the Aussie.”

Averill expects the Australian dollar to fall to $1.02 this week.

The central bank has reduced its benchmark lending rate to 3.5 percent from 4.75 percent since embarking on a series of rate cuts in November. The RBA aims to keep annual underlying inflation in a range of 2 percent to 3 percent.

RBA Rates

Interest-rate swaps indicate an 86 percent chance the Reserve Bank will lower its key rate by 25 basis points at its next meeting on Aug. 7, according to data compiled by Bloomberg. That compares with a 68 percent chance indicated on July 20. RBA Governor Glenn Stevens is scheduled to speak in Sydney tomorrow.

Futures traders decreased bets that the Australian dollar will gain against its U.S. counterpart, figures from the Washington-based Commodity Futures Trading Commission showed on July 20. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 13,931 on July 17, compared with net longs of 19,065 a week earlier.

To contact the reporter 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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