The Australian and New Zealand dollars traded within half a percent of two-week lows as concern Europe’s debt crisis may prompt sovereign downgrades sapped demand for riskier assets.
The Australian dollar fell below parity with its U.S. counterpart yesterday after the Federal Reserve refrained from taking additional actions to bolster growth. Reserve Bank of Australia Deputy Governor Ric Battellino said a likely fall in the currency will help insulate the nation from an economic slump in Europe. Demand was damped for both South Pacific currencies as Asian shares extended a global slump and data showed Australian consumer confidence was at a four-month low.
“The momentum is downwards, so it’s possible that negative sentiment could continue to drive the Aussie lower,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “There’s still a lot of nervousness about what will happen in Europe. There could be some risk that the nations could be downgraded.”
The Australian dollar was little changed from yesterday at $1.0023 as of 4:15 p.m. in Sydney from $1.0017 yesterday, when it touched 99.80 U.S. cents, the lowest since Nov. 30. The Aussie traded at 78.15 yen from 78.12.
New Zealand’s currency earlier fell to 75.41 cents, the weakest since Nov. 29, before trading little changed from yesterday at 75.66 U.S. cents. It declined 0.1 percent to 58.98 yen.
Australia’s government bonds fell, pushing the yield on the 10-year note up by four basis points, or 0.04 percentage point, to 3.84 percent. The rate reached 3.78 percent yesterday, the lowest since at least September 1992 when Bloomberg began compiling data.
The MSCI Asia Pacific Index (MXAP) of shares lost 0.5 percent, following an 0.8 percent drop in MSCI’s World Index yesterday.
Moody’s Investors Service said on Dec. 12 that last week’s euro crisis summit didn’t provide new measures which would lead to a resolution of Europe’s debt problems, and it would review European Union sovereign ratings in the first quarter of 2012. Standard & Poor’s said before the meeting that it may cut the credit rankings of euro members.
Fed policy makers left unchanged the central bank’s statement that economic conditions are likely to warrant “exceptionally low” interest rates “at least through mid-2013.” The statement reiterated a warning at from two previous meetings that global financial market strains “pose significant downside risks to the economic outlook.”
“There were some comments that were more negative on the global economy,” said St. George’s Chan. “That’s also added to the more negative sentiment and the Aussie did fall quite sharply.”
Australia’s currency maintained its decline this week after a private survey showed the nation’s consumer confidence dropped to a four-month low in December. The Westpac Banking Corp. and Melbourne Institute sentiment index (MXWO) snapped three months of gains when it fell 8.3 percent to 94.7 in December, the lowest level since August.
“If the European economy were to slow markedly over the next year or so, Australia would be affected,” the RBA’s Battellino said in a prepared remarks for a speech today in Sydney. “It is also likely, however, that if that were to eventuate, the exchange rate of the Australian dollar would fall, as it has when global growth has weakened in the past.”
The RBA lowered the overnight cash-rate target to 4.25 percent from 4.5 percent on Dec. 6, citing “considerable turbulence” in financial markets and an increased chance of a “further material slowing in global growth.”
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