Aussie, Kiwi Fall as Europe Elections Damp Risk Appetite
The Australian and New Zealand dollars dropped amid concern election results in France and Greece will derail efforts to resolve Europe’s sovereign-debt crisis, damping demand for higher-yielding assets.
The so-called Aussie slid to the weakest this year versus the greenback after Socialist candidate Francois Hollande was elected France’s president while Greek anti-bailout parties gained momentum. Australia’s currency was on track for its longest stretch of losses in nine months even after domestic reports showed gains in retail sales and building approvals. New Zealand’s dollar fell against its U.S. and Japanese peers as Asian stocks extended a global rout.
“We’ve got what may well prove to be the next wave of instability from Europe,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. (WBC) “There’s a clear voter rejection of austerity evident. We’d expect the Aussie and kiwi to remain under pressure.”
The Australian dollar fell 0.4 percent to $1.0142 as of 4:03 p.m. in Sydney, and touched $1.0110, the lowest since Dec. 29. The currency is set to weaken for a sixth day, the longest series of daily declines since Aug. 8. It lost 0.4 percent to 80.95 yen, after trading at 80.57, the weakest since Jan. 30.
The New Zealand dollar declined to 79.07 U.S. cents, the least since Jan. 13, before trading at 79.25 cents, 0.4 percent lower than the close on May 4. The so-called kiwi retreated 0.5 percent to 63.24 yen.
The yield on Australia’s 10-year note tumbled as much as 17 basis points, or 0.17 percentage point, to a record 3.393 percent. Three-year yields reached an all-time low of 2.676 percent. The rate on the 15-year security dropped to 3.721 percent, the lowest recorded for Australia’s longest-maturity issue, according to Bloomberg data going back to 1991.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to as low as 2.46 percent, also a record and below the central bank’s official cash rate of 2.50 percent. The MSCI Asia Pacific Index (MXAP) of shares slumped 2.5 percent.
The weekend elections in Europe occurred as 386 billion euros ($501.6 billion) of emergency loan packages for Greece, Ireland and Portugal and a focus on deficit reduction failed to stem the region’s fiscal crisis.
French, Greek Elections
France’s successful presidential challenger Hollande got about 52 percent of the vote against about 48 percent for incumbent Nicolas Sarkozy, according to estimates by four pollsters. Hollande has called for a re-negotiation of a budget- discipline pact crafted by European leaders in March, saying it needs to place more emphasis on growth.
In Greece, official projections predicted that New Democracy and Socialist Pasok, the two parties that secured a second rescue package for the indebted country, would fall one short of the 151 seats needed to win a majority following yesterday’s parliamentary election.
Europe’s economic and political turmoil is infecting economies including Australia and Sweden, regarded as havens, prompting policy makers in those countries to cut interest rates, weakening their currencies.
“In a weakening global environment, countries that can cut rates will do so and their currencies can fall,” Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in a telephone interview on May 1. “Europe is an economy with a currency that isn’t expensive, with not much scope or appetite for cuts.”
The Aussie has lost 1.9 percent this year, the worst performance after the Japanese yen among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes.
Australian Prime Minister Julia Gillard’s government intends to deliver its first surplus when announcing the budget to parliament in Canberra tomorrow. Reserve Bank Governor Glenn Stevens is expected to reduce the bank’s overnight cash rate target to at least a record low 2.75 percent by November, according to interest-rate swaps data compiled by Bloomberg.
“The credibility of a surplus and the expectations for easier monetary policy will exert an influence” on the Aussie, Andrew Salter, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney, wrote in a report today. “The effect on the currency cannot be ignored.”
ANZ sees the Australian dollar at $1.07 by December, down from a previous forecast of $1.10, Salter wrote. The currency will end 2012 at $1.04, according to median forecast of financial companies polled by Bloomberg.
Australia’s retail sales climbed 0.9 percent in March after a revised 0.3 percent gain in the previous month, the country’s statistics office said in Sydney today. The median forecast in a Bloomberg News survey was for a 0.2 percent advance. A separate report showed the number of permits granted to build or renovate houses and apartments rose 7.4 percent in March from February, when they dropped a revised 8.8 percent.
“I think the data was actually very strong, so it’s more like it’s putting a floor on the Aussie weakness that we’re seeing,” said Thomas Harr, the Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc. “It’s difficult to see the Aussie bouncing in this environment where risk sentiment is pretty weak.”
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