Aussie Dollar Drops, Kiwi Pares Gain as Stocks Decline
Australia’s dollar slid and New Zealand’s pared an earlier gain as Asian stocks declined and Chinese data added to signs the global growth is slowing, damping investor appetite for higher-yielding assets.
The so-called Aussie and kiwi fell from seven-week highs as a report signaled Chinese manufacturing may shrink for an eighth month and commodities dropped to the lowest level since 2010. The Federal Reserve yesterday decided to not implement more asset purchases and lowered growth forecasts. The New Zealand dollar rose earlier after a government report showed the nation’s economy was accelerating.
The Australian and New Zealand currencies “have been undermined on the day by the weakness in regional equity markets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It looks as though Asia was more disappointed than the U.S. equity market that the Fed didn’t take stronger action. It’s certainly spilling over to both Aussie and kiwi.”
The Australian dollar dropped 0.3 percent to $1.0162 as of 4 p.m. in Sydney. It climbed to as high as $1.0224 yesterday, the strongest level since May 4. New Zealand’s currency rose 0.2 percent to 79.80 U.S. cents after earlier touching 80.17, also the highest since May 4.
The MSCI Asia Pacific Index (MXAP) of shares declined 0.6 percent and the S&P GSCI Index of 24 raw materials lost 0.9 percent.
The 48.1 preliminary reading for a purchasing managers’ index in China released by HSBC Holdings Plc and Markit Economics today compares with a final 48.4 for May. A reading below 50 indicates contraction. If confirmed on July 2, it would equal the run of below-50 readings from August 2008 to March 2009. The nation is Australia’s biggest trading partner and New Zealand’s second-largest export destination.
“The China PMI numbers fit in line with the trend that we’ve seen from data for some time now,” said Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore. “The market had been buying back risk over the past several weeks, so it looks like they weren’t well positioned for a weaker number.”
U.S. policy makers yesterday chose not to announce a third round of asset purchases, or quantitative easing, opting instead to prolong its so-called Operation Twist through the end of this year. The program aims to hold down borrowing costs by extending the maturity of assets held by the Fed. The U.S. central bank has already bought $2.3 trillion of assets in two rounds of quantitative easing.
The Fed also cut its estimate for growth in 2012 to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April. Officials forecast the jobless rate will average 8 percent to 8.2 percent in the fourth quarter of this year versus an estimate of 7.8 to 8 percent in April.
In Europe, finance ministers are set to meet in Luxembourg to discuss the region’s financial woes. Italian Prime Minister Mario Monti will host a meeting with his German, French and Spanish counterparts tomorrow in Rome.
“The markets are very mixed and they’re waiting for the next installment of the news from Europe,” said Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd. (NAB) Investors are also hoping that the Fed, the Bank of England and the Bank of Japan (8301) will implement further quantitative easing, she said.
New Zealand’s economy grew at the fastest pace in five years last quarter as food manufacturing and farm production increased, a report today showed. Gross domestic product rose 1.1 percent in the three months ended March 31 from the previous quarter, when it expanded a revised 0.4 percent, Statistics New Zealand said.
Australian bonds pared an earlier decline, with the yield on the 10-year note at 3.14 percent from 3.13 percent yesterday. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, climbed seven basis points to 2.79 percent.
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