Bloomberg News

Aussie Dollar Holds 3-Day Loss Versus Greenback as FOMC Meets

June 19, 2013

The Australian dollar remained lower following a three-day loss against the greenback before the Federal Reserve concludes a policy meeting today.

The Aussie fell to the lowest in almost a week ahead of a news conference by Fed Chairman Ben S. Bernanke that could provide clues on when policy makers will begin scaling back quantitative easing that tends to debase the U.S. currency. New Zealand’s kiwi dollar advanced after data showing a narrowing in the nation’s current-account deficit and the first gain in whole-milk powder prices in two months.

“I think the message is very much nervous, choppy price action going into Bernanke,” said Robert Rennie, a Sydney-based chief currency strategist at Westpac Banking Corp. (WBC) “Aussie hasn’t traded well. I do think though, that we’re showing some signs of building a base in this 94, 94.50 U.S.-cent region.”

The Australian dollar was little changed at 94.84 U.S. cents as of 4:42 p.m. in Sydney from yesterday, when it dropped 0.6 percent. It earlier touched 94.35, the lowest since June 13. The kiwi rose 0.2 percent to 80.03 U.S. cents, following a 1.6 percent slide over the previous three sessions.

Bernanke said on May 22 the central bank could reduce its monthly purchases of a combined $85 billion of Treasuries and mortgage-backed securities if the employment outlook shows sustainable improvement. The Fed will trim purchases to $65 billion at its Oct. 29-30 meeting, according to a Bloomberg News survey of economists this month.

Benchmark central-bank rates are 2.75 percent in Australia and 2.5 percent in New Zealand. Although both are record lows, they compare with rates as low as zero in the U.S. and Japan, attracting investor flows into the South Pacific nations’ higher-yielding assets.

Rate Bets

Traders are pricing in 37 basis points of interest-rate cuts by the Reserve Bank of Australia within 12 months, according to a Credit Suisse Group AG indexes based on swap contracts. They see 39 basis points of increases by the Reserve Bank of New Zealand.

Futures traders extended record bets that the Aussie will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission from last week showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Aussie compared with those on a gain -- so-called net shorts -- was 63,277 on June 11, the most in data going back to January 1993.

Biggest Decliner

The Aussie has tumbled 10 percent in the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar is the next biggest decliner, with a 3.9 percent slide.

A drop in commodity prices means Australia’s dollar is likely to weaken further to 90 U.S. cents by year end, Nomura Holdings Inc. strategists Charles St-Arnaud and Yujiro Goto wrote in a note dated yesterday.

Demand for the kiwi was supported after data today showed the current-account deficit narrowed in the first quarter to 4.8 percent of gross domestic product from 5 percent in the prior period. The result was in line with analyst estimates.

Whole-milk powder auction prices rose for the first time in two months, according to a trade-weighted index posted on Auckland-based Fonterra Cooperative Group Ltd.’s GlobalDairyTrade website. Powder for delivery across all contracts through December rose 2.2 percent. New Zealand is the world’s largest exporter of dairy products.

To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

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


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