Bloomberg News

Aussie Dollar Touches Month-Low on Global Growth Concerns

August 27, 2012

Australia’s dollar touched its lowest level in a month, extending a two-week decline, as concern global growth is waning curbed demand for higher- yielding assets.

The so-called Aussie slid versus most of its 16 major counterparts after a report showed profits for industrial companies in China, Australia’s biggest trading partner, fell 5.4 percent in July from a year earlier. Australia’s currency and its New Zealand counterpart weakened before a report today that may show German business confidence fell to a two-year low, adding to signs Europe’s debt crisis is damping the region’s prospects for growth.

“There’s only so far the Aussie can rally when concerns for the global economy remain significant,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “Those concerns have only been further fueled by what’s been happening in China.”

Australia’s currency dropped 0.2 percent to $1.0383 as of 4:27 p.m. in Sydney after touching $1.0372, the lowest since July 26. The Aussie fell 0.2 percent to $1.0403 in the five days ended Aug. 24. It lost 0.1 percent to 81.74 yen.

The New Zealand dollar, nicknamed the kiwi, declined 0.1 percent to 81.04 U.S. cents after rising 0.5 percent to 81.12 last week. It traded at 63.81 yen from 63.83.

Ten-year note yields in Australia dropped three basis points, or 0.03 percentage point, to 3.21 percent. The rate on 15-year securities fell to as low as 3.47 percent, sliding below the 3.5 percent overnight cash rate target for the first time since Aug. 10, according to data compiled by Bloomberg.

New Zealand’s swap rate, a fixed payment made to receive floating rates, dropped two basis points to 2.70 percent.

Profits Drop

The decline in Chinese industrial profits last month was the fourth straight drop, according to data released today from the National Bureau of Statistics.

On an inspection of Guangdong province, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the official Xinhua News Agency reported Aug. 25.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said on the Australian Broadcasting Corp.’s Inside Business program yesterday.

The Munich-based Ifo institute’s business climate index for Germany probably slid to 102.7 in this month, according to the median estimate of economists in a Bloomberg News survey before today’s report. That would be the least since March 2010 and compares with a reading of 103.3 in July.

Aussie Longs

Futures traders increased their bets that the Australian dollar will rise against the greenback, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers on a gain in the Aussie compared with those on a drop was 86,882 on Aug. 21, up from so- called net longs of 66,679 a week earlier.

The most recent figure was the highest since April 2011, when net longs climbed to a record, according to data compiled by Bloomberg going back to 1993.

Demand for Australian and New Zealand’s currencies was supported after Federal Reserve Chairman Ben S. Bernanke said “there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.”

Bernanke made the remarks in a letter dated Aug. 22 to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee. The note was in response to an Aug. 1 letter from Issa asking questions about monetary policy.

Jackson Hole

The U.S. central bank chairman will speak at the Kansas City Fed’s annual economic symposium in Jackson Hole on Aug. 31. Minutes of the Fed’s latest policy meeting released last week showed officials remained supportive of a third round of asset purchases under quantitative easing, or QE. Policy makers will next meet on Sept. 12-13.

“The reason why the Aussie has been so well-supported is precisely because the U.S. dollar has been weak on expectations for the Fed to ease monetary policy,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “It should underpin the Aussie dollar for a while, at the very least up until Jackson Hole.”

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

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


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