Bloomberg News

Aussie Falls as Trade Gap Spurs RBA Rate-Cut Bets; Kiwi Weakens

October 03, 2012

Aussie Falls as Trade Deficit Widens, RBA Rate-Cut Bets Increase

RBA Governor Glenn Stevens said yesterday “the outlook for growth in the world economy has softened over recent months,” after the central bank board lowered its overnight cash-rate target for the first time since June. Photographer: Ian Waldie/Bloomberg

Australia’s dollar fell to the lowest level in almost a month after a government report showed the country’s trade deficit reached the widest since 2008.

The so-called Aussie extended declines against most major peers amid speculation the Reserve Bank of Australia will have to lower interest rates again following a quarter-point cut yesterday to cushion the impact of slowing global growth. Demand for the Australian and New Zealand currencies was also limited as Asian shares fell and data signaled slowing growth in China’s non-manufacturing industries.

“The widening of Australia’s trade deficit heightens expectation for additional interest-rate cuts by the RBA,” said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. The Chinese data today “confirms the country’s economy is slowing and could add some downward pressure on the Australian dollar.”

Australia’s dollar touched $1.0203, the lowest level since Sept. 6, before trading at $1.0209 as of 4:30 p.m. in Sydney, 0.6 percent below yesterday’s close in New York.

The currency also traded near a one-year low against its New Zealand counterpart. It fetched NZ$1.2429, having touched NZ$1.2372 yesterday, the weakest since September 2011. The New Zealand dollar, nicknamed the kiwi, dropped 0.8 percent to 82.13 U.S. cents.

Australian bonds rose, pushing the yield on 10-year securities down by as much as seven basis points or 0.07 percentage point, to 2.91 percent, the lowest since July 27.

Trade, Services

Australia’s trade deficit widened to A$2.03 billion ($2.08 billion) in August from a revised A$1.53 billion shortfall the previous month, the Bureau of Statistics said in a statement today. The median estimate of economists surveyed by Bloomberg News was a A$685 million deficit.

Commonwealth Bank of Australia (CBA) and the Australian Industry Group said in Sydney today their performance of services index declined 0.5 point to 41.9 last month. The gauge has not been above the 50 level that divides expansion from contraction since January. A private report showed sales of newly built homes slumped to the lowest level on record in August.

Swaps indicate a 75 percent chance the RBA will reduce its benchmark rate to 3 percent next month from its current level of 3.25 percent, data compiled by Bloomberg show. Governor Glenn Stevens said yesterday that growth is being damped by the more moderate Chinese expansion and weakness in Europe.

“The Reserve Bank will cut again, probably next month,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney. “I don’t think the RBA will cut as much as the market is expecting, but those expectations have been one thing that have pushed the Aussie down.”

China’s purchasing managers’ index for non-manufacturing industries fell to 53.7 from 56.3 in August the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing today. China is Australia’s biggest trading partner and New Zealand’s second largest export market.

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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