Bloomberg News

Aussie Drops From Near 6-Month High on Europe Concern

September 17, 2012

The Australian dollar declined from near its strongest level in almost six months as concern European leaders are struggling to find agreement on debt-crisis solutions curbed demand for higher-yielding assets.

The so-called Aussie slid versus most of its 16 major counterparts before Spanish Prime Minister Mariano Rajoy travels to Rome for talks with Italian Prime Minister Mario Monti this week. Australia’s currency and its New Zealand counterpart fell against the yen amid escalating tensions between Japan and China, Asia’s biggest economies, over the ownership of disputed islands.

“The plans are laid in Europe, but the actual implementation will be the challenge,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “Geopolitical tensions between China and Japan will not be good for the economy and trade. There’s room for selling the Aussie back again.”

Australia’s dollar lost 0.2 percent to $1.0527 as of 5:05 p.m. in Sydney from $1.0551 on Sept. 14, when it rose to $1.0625, the highest since March 20. It fell 0.3 percent to 82.45 yen. New Zealand’s dollar fell 0.1 percent to 82.84 U.S. cents from last week, when it touched 83.54, the strongest since March 2. The so-called kiwi traded at 64.89 yen, 0.2 percent below its 64.98 closing price on Sept. 14.

Australian bonds fell, pushing the 10-year yield up 15 basis points, or 0.15 percentage point, to 3.43 percent. That’s the biggest one-day rise in the rate since July 27. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose 4 basis points to 2.78 percent.

Meeting Deadlock

A meeting of European Union finance ministers last week in the Cypriot capital of Nicosia deadlocked over the timetable for a more unified European Union banking sector. The ministers also disagreed over the terms of bailout requests and the role of the European Central Bank.

Spain’s Rajoy will meet Italy’s Monti on Sept. 21. The following day, German Chancellor Angela Merkel will hold talks with French President Francois Hollande at a commemoration in Ludwigsburg, Germany.

The Reserve Bank of Australia today released information on the composition of other central banks’ foreign-exchange reserves in response to a Bloomberg News request under the Freedom of Information Act. Fifteen national central banks hold Australian dollar reserves -- including Sweden, Switzerland, Russia, Poland and Korea -- while eight others possibly do, the RBA said.

‘Major Beneficiary’

“Central banks have been diversifying not only out of the U.S. dollar, but also out of core foreign-exchange reserve allocations into so-called ‘other’ currencies,” Callum Henderson, Singapore-based global head of currency research at Standard Chartered Plc, said after the data was released. “The Australian dollar has been a major beneficiary of this flow.”

Standard Chartered raised its year-end forecast for the Australian dollar to $1.07 from a previous prediction of $1.05, according to a research note e-mailed to clients today.

The Aussie has weakened 2.1 percent in the past month, the biggest drop after the U.S. dollar among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar lost 0.4 percent.

Territorial Dispute

The South Pacific currencies slid as a territorial dispute between China and Japan worsened, with Prime Minister Yoshihiko Noda saying he’ll demand the Chinese government ensure the safety of Japanese citizens amid protests in a dozen cities including Beijing, Shanghai and Guangzhou.

Demonstrators called for Chinese sovereignty over disputed islands, known as Senkaku in Japanese and Diaoyu in Chinese, and the boycott of Japanese goods. Tensions escalated after Noda’s government said last week it would purchase the territory from a private Japanese owner, prompting China to dispatch government vessels near the area. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.

The U.S. will announce a trade complaint against China today, alleging impermissible subsidies of auto- and auto-parts exports, according to an Obama administration official who asked to speak on condition of anonymity.

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

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


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