Australian Dollar Weakens on Speculation China Will Raise Interest Rates

Australia’s dollar fell against the yen, extending a weekly drop, as speculation China’s central bank will raise interest rates to combat inflation damped demand for the South Pacific nation’s assets.

The Australian currency weakened for the fourth time in five days versus the Japanese currency after a Chinese report showed inflation accelerated to the fastest pace in more than two years. The Australian and New Zealand currencies also earlier declined against the dollar as concern China will take additional measures to cool growth pushed down Asian stocks.

“The fear in Australia is that inflation dominates Chinese policy thinking and of course they clamp down on interest rates,” said Adrian Foster, head of financial-market research for Asia at Rabobank Groep NV in Hong Kong.

Australia’s dollar dropped 0.3 percent to 87.73 yen at 11:38 a.m. in New York from 88.033 yesterday, and lost 1.9 percent this week. The Aussie rose 0.1 percent to $1.0556 after weakening as much as 0.3 percent.

New Zealand’s dollar traded at 79.68 U.S. cents from 79.38 cents, and rose to 66.22 yen from 66.28 yen.

The MSCI Asia Pacific Index of shares fell 0.6 percent, snapping a two-day advance.

China’s Economy

Australia’s currency had its first weekly loss in four weeks after China’s National Bureau of Statistics said consumer prices climbed 5.4 percent in March from a year earlier, the fastest pace since July 2008. China’s economy grew 9.7 percent last quarter, beating the 9.4 percent estimate in a Bloomberg survey. China is Australia’s largest trading partner.

The People’s Bank of China may boost reserve requirements for lenders to drain cash from the fastest-growing major economy, Credit Agricole CIB and Australia & New Zealand Banking Group said.

Futures traders increased bets to the most since 1993 that the Australian dollar will appreciate against the greenback, according to figures from the Washington-based Commodity Futures Trading Commission published last week.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the so-called Aussie compared with those on a drop -- so-called net longs -- was 90,938 on April 5, compared with net longs of 85,565 a week earlier. Futures positions, when they reach an extreme, are sometimes viewed as a contrarian indicator because traders often cut positions when momentum in a currency shifts.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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