Australia’s dollar fell to its weakest level this year and bond yields reached record lows as concern mounted that Greek leaders will be unable to form a coalition government, reducing appetite for riskier assets.
The so-called Aussie dropped versus all but one of its 16 major peers after Prime Minister Julia Gillard said the budget surplus her government has promised to deliver would provide scope for the central bank to cut interest rates. New Zealand’s currency, nicknamed the kiwi, is set to complete an eight-day drop in what would be its longest losing streak against the dollar since 2001 as Asian stocks extended a global rout.
“Risk is going to be on the back foot while the Greek squabbles continue,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia. (CBA) “I don’t have a lot of optimism that these things will be resolved quickly. It’s pulling down many currencies like the Aussie, the kiwi and the Canadian dollar, which are more linked to global growth.”
The Australian dollar fell to $1.0053, its lowest level since Dec. 29, before trading at $1.0084 at 4:13 p.m. in Sydney, 0.4 percent below yesterday’s close. It lost 0.5 percent to 80.47 yen.
Returning Australia’s budget to surplus will give the central bank “maximum room to move” in setting interest rates, Gillard said today in an interview with Bloomberg News. The Reserve Bank of Australia this month cut its benchmark rate by half a percentage point to 3.75 percent and investors are betting there is an 88 percent chance of another reduction in June.
Australia’s 10-year bond yield fell to a record 3.347 percent as rates on all notes maturing in three years or longer dropped to the lowest ever.
New Zealand’s currency weakened 0.1 percent to 78.69 U.S. cents. The kiwi retreated 0.2 percent to 62.79 yen.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose 5 1/2 basis points to 2.525 percent. It fell to an all-time low of 2.46 percent on May 7, below the central bank’s official cash rate of 2.50 percent.
The MSCI Asia Pacific Index of shares lost 1.2 percent. The Standard & Poor’s 500 Index (SPX) of U.S. shares lost 0.4 percent yesterday.
Both South Pacific currencies declined as bets increased that a left-leaning coalition in Greece may undo bailout accords. Alexis Tsipras, whose Syriza party placed second in Greek elections on May 6, said he would forge ahead with plans to form a coalition government of left-wing parties after he was handed the mandate by President Karolos Papoulias.
The Aussie has lost 2.4 percent this year, the worst performance after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The kiwi gained 0.4 percent.
Australian Treasurer Wayne Swan said yesterday the nation’s underlying cash surplus will be A$1.54 billion ($1.55 billion) in the 12 months to June 30, 2013. Expenditures are forecast to fall to A$364.2 billion next year, the first drop in figures dating back to 1971. The A$44.4 billion deficit this year is the third-largest on record and is 3 percent of gross domestic product.
New Zealand’s dollar slid versus its U.S. and Japanese counterparts as central bank Governor Alan Bollard attributed its weakening to falling commodity prices and weak economic indicators.
Factors behind the decline include “a risk-off environment in Europe and also a recognition of softer commodity prices and a few bits of soft data in Australia and New Zealand,” Bollard told reporters today. “It’s been moving in a direction that we would have thought is broadly in line with fundamentals.”
Bollard signaled on April 26 he may reassess the outlook for interest rates should the exchange rate stay strong. Investors are betting he may reduce borrowing costs as soon as next month. The New Zealand benchmark is currently at a record low 2.5 percent.
The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials fell 0.8 percent yesterday.
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