Bloomberg News

Aussie Dollar Near Five-Week Low on China Growth Concern

August 31, 2012

Australia’s dollar traded near a five-week low amid concern a slowdown in China, the country’s biggest trading partner, will hamper growth.

Demand for the Australian and New Zealand dollars was limited before a purchasing managers’ index to be released next week that may show China’s manufacturing industry is stagnating. A Reserve Bank of Australia report showed slower-than-predicted credit growth in July. The so-called Aussie headed for its first monthly decline since May before Federal Reserve Chairman Ben S. Bernanke speaks in Jackson Hole, Wyoming, today.

“If the PMI numbers confirm a slowdown in the Chinese economy, it could put further downward pressure on the Aussie,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency- margin company. He expects the Australian dollar to decline to $1.0098 in the next month after the currency fell below its 200- day moving average yesterday.

The Australian dollar bought $1.0311 as of 4:49 p.m. in Sydney from $1.0289 yesterday, when it slid as low as $1.0277, the weakest since July 25. It’s headed for a 1.8 percent drop this month versus the greenback.

The New Zealand dollar fetched 80.01 U.S. cents from 79.81 yesterday, when it touched 79.70, the lowest since July 26.

Australian 10-year bond yields fell for an 11th straight day, extending the longest stretch of declines since at least 1990, when Bloomberg began compiling daily data. The yield dropped three basis points, or 0.03 percentage point, to 3.09 percent. It earlier touched 3.07 percent, the lowest since Aug. 1.

China Manufacturing

The purchasing managers’ index compiled by the Chinese government probably fell to 50 in August, the dividing line between expansion and contraction, according to economists surveyed by Bloomberg News before a report due Sept. 1. The index reading was 50.1 in July.

The Australian currency dropped 3.1 percent in the past month according to Bloomberg Correlation-Weighted Indexes. That’s the worst performance among 10 developed-nation currencies tracked by the indexes. The New Zealand dollar, known as the kiwi, lost 2.2 percent, the second-worst performer.

Demand for the Aussie was tempered as Asian stocks fell and the RBA said private sector credit rose less than expected.

The MSCI Asia Pacific Index (MXAP) of stocks fell 0.6 percent, after China’s Shanghai Composite Index yesterday slipped to its lowest level since February 2009.

RBA Decision

The RBA said today private sector credit rose 0.2 percent in July after gaining 0.3 percent in June. The median estimate of economists surveyed by Bloomberg was a 0.4 percent increase.

“Credit growth was disappointing,” Spiros Papadopoulos, a senior economist at National Australia Bank Ltd., wrote in a note to clients today. “Today’s data alone is not a view changer, but it is a reminder that the risk remains for a further rate cut if data continues to surprise on the downside.”

Interest-rate swaps indicate a 17 percent chance the Reserve Bank will lower its main interest rate by 25 basis points to 3.25 percent at its next meeting on Sept. 4, according to data compiled by Bloomberg.

In the U.S., Bernanke is scheduled to speak today at the Kansas City Fed’s annual symposium amid speculation policy makers will consider further monetary easing at their next meeting.

Fed Policy

Improving economic data may reduce pressure on the Fed to embark on a third round of quantitative easing, or QE3, with the central bank’s Beige Book report this week saying the economy has continued to expand “gradually.”

U.S. factory orders probably increased 2 percent in July from the previous month, when it declined 0.5 percent, according to median estimate of economists surveyed by Bloomberg before a report due today.

“There are more people saying that the Fed will not do QE3, given some signs of improvement we’ve seen in U.S. economic data,” said Gaitame.com’s Kawabata. “Should that be the case, that could weigh on the Aussie and kiwi.”

To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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


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