Aussie Drops as Producer Prices Fall Before CPI Data

Australia’s dollar and yields on the country’s government bonds extended declines after a report showed the nation’s producer price index unexpectedly fell.

The so-called Aussie weakened against all of its 16 major peers before data forecast to show consumer price inflation remained within the Reserve Bank’s target range last quarter, opening the door to interest-rate cuts to spur growth. New Zealand’s dollar declined ahead of a central bank meeting this week, with policy makers forecast to leave interest rates unchanged at a record low.

“We may not just have one more rate cut, the first one in early May, but there may be a second in June, because our economy is growing below trend,” Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney said of Reserve Bank of Australia policy. “The key for the Reserve Bank and everybody is if there are inflationary pressures. The Aussie may be a touch softer over the week.”

The Australian dollar fell 0.4 percent to $1.0339 as of 3:16 p.m. in Sydney from the close in New York. It dropped 0.7 percent to 84.08 yen. New Zealand’s dollar declined 0.3 percent to 81.61 U.S. cents from April 20, when it jumped 0.6 percent. The so-called kiwi lost 0.6 percent to 66.37 yen.

Australia’s government bonds advanced, pushing the yield on the 10-year security down by as much as seven basis points, or 0.07 percentage point, to 3.76 percent, the lowest since Feb. 3. The five-year yield touched 3.25 percent, the least since Dec. 30, and the rate on two-year government notes fell to 3.18 percent, the lowest since Feb. 1.

Unexpected Drop

The nation’s producer price index dropped 0.3 percent in the January-to-March period from the prior quarter, when it gained 0.3 percent, the Bureau of Statistics said in Sydney today. The median estimate of 17 economists surveyed by Bloomberg News was a 0.4 percent increase. The index rose 1.4 percent in the first quarter from year earlier, less than the median forecast of 2.2 percent.

The index confirms “the lack of upstream price pressures in the economy and further points to the RBA cutting rates next week, as long as tomorrow’s CPI does not come in surprisingly high,” Spiros Papadopoulos, senior economist at National Australia Bank Ltd. (NAB), wrote in a note to clients today.

The consumer price index probably rose 0.7 percent in the first quarter from the previous three months, according to economists’ estimates before the data tomorrow. Prices were 2.2 percent higher than a year earlier, the survey indicated. The RBA targets 2 percent to 3 percent annual inflation.

RBA Policy

The RBA on April 13 held its benchmark interest rate unchanged at 4.25 percent, in line with economist estimates. A Credit Suisse Group AG index based on swaps indicates traders are betting the central bank will lower rates by 97 basis points, or 0.97 percentage point, over the next 12 months, compared with 38 basis points indicated on March 20.

New Zealand’s consumer prices in the first quarter increased 0.5 percent from the previous three-month period, according to a report by Statistics New Zealand on April 19. The central bank targets annual inflation of 1 percent to 3 percent. Reserve Bank of New Zealand policy makers will meet on April 26. Last month, central bank Governor Alan Bollard forecast the cash rate would be unchanged for much of 2012.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, slid 2 1/2 basis points to 2.875 percent, the least since Feb. 16.

IMF Funding

Losses in the South Pacific nations’ currencies were limited after Group of 20 officials agreed to add more than $430 billion to the International Monetary Fund to help it protect the global economy against Europe’s debt crisis. The near- doubling of the IMF’s firepower was announced after G-20 finance ministers and central bankers met in Washington.

“What we’re building is a wall against the rains and the flood arising in terms of structural issues facing various nations in Europe,” said St. George’s Kunnen. “It’s difficult for me to see how the $430 billion will actually change the game, but it certainly adds a positive tone.”

China supports boosting funding for the IMF while stressing that the Washington-based lender must continue implementing reforms as a condition for specific cash commitments, People’s Bank of China Governor Zhou Xiaochuan said April 21. On the domestic economy, China’s growth outlook “remains positive,” Zhou said.

A Chinese manufacturing index was at 49.1 for April from 48.3 in March, according to a preliminary reading of Purchasing Managers’ Index reported by HSBC Holdings Plc and Markit Economics today. A result below 50 indicates a contraction. China is Australia’s biggest trading partner and New Zealand’s second-largest export market.

-- Editors: Jonathan Annells, Naoto Hosoda

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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

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