Australian Dollar Drops on Concern Summit Will Fail to End Europe Crisis

The Australian and New Zealand dollars fell on concern Europe’s leaders won’t reach a resolution to the region’s debt crisis at an Oct. 23 summit.

Demand for the Aussie was limited as Asian stocks declined on concern that a Franco-German split about a European bailout fund will hamper progress. Stocks and commodities fell, sapping the appeal of higher-yielding assets.

“The chance for the European summit this weekend to be a positive surprise for the markets is decreasing,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “The bias is for the markets to lean toward a risk-off mood again after the meeting because of concern over the debt crisis.”

The Australian dollar slid 0.5 percent to $1.0175 at 11:56 a.m. New York time. The Aussie dropped 0.4 percent to 78.25 yen.

New Zealand’s currency, nicknamed the kiwi, weakened 0.5 percent to 78.78 U.S. cents, and fell 0.4 percent to 60.58 yen.

The Standard & Poor’s 500 Index fell 0.8 percent and the S&P GSCI Index of 24 raw materials sank 1.4 percent.

Euro-area leaders are scheduled to meet on Oct. 23, with disagreement about the European Central Bank’s role threatening to hinder progress on the banking and economic questions needed to deliver the comprehensive debt crisis strategy. The German government hasn’t excluded postponing the summit because of stalling negotiations on boosting the firepower of the region’s rescue fund, Die Welt said, citing unidentified people close to the country’s governing coalition.

Australia’s banks have limited holdings of sovereign debt in countries most at risk in Europe, without being “entirely immune” from the turmoil, Reserve Bank of Australia Assistant Governor Malcolm Edey said.

“Australian banks have only limited direct exposures to sovereign debt in the countries that are most at risk,” Edey said in prepared remarks for a speech in Sydney today. “So potential effects on Australian banks’ overall asset quality are not an issue.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.