Tokyo: Australia’s dollar fell against most of its major peers as traders ramped up bets the Reserve Bank will cut interest rates next month from an already record low.
The Aussie trimmed its first weekly advance in four versus the greenback as investors weighed the timing and pace of a reduction in US stimulus ahead of speeches by three regional Federal Reserve Bank presidents. Australia’s currency has fallen 12% this year amid prospects for a divergence in monetary policy with the US, reducing the South Pacific nation’s yield advantage. New Zealand’s kiwi dollar headed for a weekly gain.
The broader-term Aussie dollar weakness is going to continue, said Michael Judge, a Sydney-based dealer at OZForex Pty Ltd., an online foreign-exchange company. If you see jumps up to 92, 92 1/2 US cents, that’s a good sell signal for the Aussie.
The Australian currency slipped 0.2% to 91.74 US cents as of 4:40 pm in Sydney from Thursday. It has risen 1.2% this week. New Zealand’s dollar added 0.1% to 78.62 US cents, set for a 2% weekly advance.
Australia’s dollar has tumbled 10% in the past three months, the worst performer among 10 developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The US dollar has gained 4.2%, while the kiwi has fallen 5.6%.
Swaps data compiled by Bloomberg show traders see a 75% chance the Reserve Bank of Australia will cut its benchmark rate to an unprecedented 2.5% at its next meeting on 6 August. The probability was 45% at the start of the week. The key rate is currently at a record low of 2.75%.
Rate cut bets have climbed in a week when reports showed the unemployment rate rose and business conditions deteriorated to levels unseen since 2009. In China, Australia’s biggest trade destination, data showed imports unexpectedly declined for a second month in June.
Consumption, confidence, it’s all heading south, said OzForex’s Judge before the release of the housing data. If we see a cut, we’re going to see a correction in the Aussie. But I think 90 US cents will hold.
China’s finance chief signaled the government may tolerate a slower pace of economic expansion than officials have previously indicated.
We don’t think 6.5% or 7% will be a big problem, finance minister Lou Jiwei said on Thursday in Washington. Please don’t forget that our expected GDP growth rate this year is 7%, Lou said, referring to gross domestic product.
China’s statistics bureau reports second-quarter growth on 15 July, with a 7.5% from last year as the median estimate in a Bloomberg News survey of economists.
The focus will intensify on the softening growth outlook for Australia as the economy struggles to offset the slowdown from the end of the mining and resource boom, Credit Suisse Group AG currency analysts Marcus Hettinger and Koon How Heng wrote in research dated yesterday. Australia’s currency remains overvalued compared to our long-term fair value estimate of around 70 US cents, they wrote.
Regional Federal Reserve Bank presidents may offer insight on Friday on the timing of any tapering of US stimulus. St. Louis Fed President Jim Bullard, Philadelphia Fed President Charles Plosser and San Francisco Fed President John Williams are all scheduled to speak, after chairman Ben S. Bernanke said on 10 July highly accommodative monetary policy would be necessary for the forseeable future.
The Fed is buying $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs, which tends to devalue the US currency.
The Aussie rallied as much as 1.5% on Thursday, trading above 93 US cents for the first time in two weeks, before closing 0.2% higher. The kiwi dollar surged as much as 1.7% before closing 0.2% stronger.
The consensus view of Bernanke’s speech appears to be that little new was said but the scope for market confusion has increased, Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland., wrote in a note to clients on Friday. Fed tapering expectations will remain a depressant. BLOOMBERG