The Australian dollar traded near a five-week low as concern global growth may falter and speculation the central bank will temper the pace of future interest-rate increases damped demand for riskier assets.
Australian government bonds rose the most in three months as stocks slumped around the world on concern Europe’s government debt crisis is spreading beyond Greece to nations such as Spain and Portugal. The Australian and New Zealand dollars weakened yesterday as prices of commodities slumped on signs China’s economy will slow.
“We’re getting to the end of phase one in the RBA’s tightening cycle and that along with concern about a potential slowdown in China is denting demand for the Australian dollar,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., the nation’s second-largest lender.
Australia’s currency traded at 91.03 U.S. cents as of 4:09 p.m. in Sydney from 90.89 cents in New York yesterday, after earlier falling to 90.72 cents, the weakest since March 29. The currency was at 86.23 yen from 85.91 yen.
New Zealand’s dollar was at 72.12 U.S. cents from 72.02 cents, and bought 68.33 yen from 68.08 yen.
Australia’s dollar has fallen 1.6 percent and New Zealand’s has declined 0.8 percent this week as the MSCI Asia Pacific index of shares slid for three straight days. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped as much as 2.3 percent to a seven-month low.
Oil fell for a second day today after the Reuters/Jefferies CRB Index of 19 raw materials dropped 2.3 percent yesterday as slowing Chinese manufacturing and Europe’s budget woes fuelled speculation the global economic recovery will wane.
Australia’s central bank Governor Glenn Stevens raised the benchmark rate for a sixth time in seven meetings yesterday and said lending costs are back to “average” for most borrowers. The bank will keep borrowing costs unchanged next month, according to all 24 economists surveyed by Bloomberg News.
The yield on Australia’s 10-year note slid nine basis points, or 0.09 percentage point, to 5.66 percent, according to data compiled by Bloomberg. The 4.5 percent bond due April 2020 gained 0.60, or A$6 per A$1,000 face amount, to 91.28.
“We had a big rally across the curve in a classic flight to quality with stock markets down,” said Tony Morriss, senior markets strategist in Sydney at Australia & New Zealand Banking Group Ltd. With the Australian budget due May 11, “everyone’s focusing on better budget numbers in the out-years so the profile of the supply of bonds should start to moderate.”
Australia’s dollar rose earlier after a government report showed home-building approvals increased in March by the most since 2002, a sign housing demand hasn’t been damped by the central bank’s rate increases.
“The building numbers should help to differentiate the Aussie story and lend some support,” ANZ’s Morriss said.
Demand for Australia’s dollar was also bolstered as exporters bought the currency to take advantage of yesterday’s 1.9 percent decline, said Tim Kelleher, vice-president of institutional banking and markets in Auckland at Commonwealth Bank of Australia. The Aussie may gain toward 91.30 U.S. cents and the kiwi toward 72.30 cents, but “the bias is to sell rallies,” he said.
New Zealand’s currency traded within 2 U.S. cents of a three-month high as Auckland-based Fonterra Cooperative Group Ltd. said milk powder prices were near the strongest since July 2008, easing 1.1 percent after surging 24 percent at last month’s auction. Fonterra is the world’s largest dairy exporter.