Kiwi Weakens on Europe Debt Concern; Aussie Erases Loss on CPI

The Australian and New Zealand dollars traded near the lowest in more than three weeks against the yen as declines in Asian stocks and concern Europe’s debt crisis is worsening weighed on risk appetite.

The so-called kiwi declined against all except one of its 16 major peers after borrowing costs for Spain and Italy rose and speculation mounted that Greece may miss debt-reduction targets. The Aussie touched a six-month high against its New Zealand counterpart as traders pared bets the Reserve Bank of Australia will cut interest rates next month following data that showed core consumer prices rose in line with forecasts.

“The Aussie looks a bit pricey given the slowdown in the global economy, weaker commodity prices and weaker equity markets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. The Australian and New Zealand dollars “are very sensitive to the deterioration in global risk appetite.”

The Australian dollar earlier touched 79.54 yen, the lowest since June 29, before trading at 79.90 as of 4:09 p.m. in Sydney from yesterday’s close at 79.92. It was little changed at $1.0224 after earlier weakening as much as 0.4 percent. The Aussie touched NZ$1.0377, the strongest since Jan. 9, before trading at NZ$1.3066, 0.3 percent higher from yesterday.

New Zealand’s dollar touched 61.01 yen, the weakest since June 12, before trading 0.3 percent lower from yesterday’s close at 61.15. It lost 0.3 percent to 78.23 U.S. cents, after earlier dropping to 78.08, the lowest since June 14.

The MSCI Asia Pacific Index (MXAP) of stocks declined 1.3 percent following a 0.8 percent drop in the MSCI World Index (MXWO) and Thomson Reuters/Jefferies CRB Index (CRY) of raw materials yesterday.

European Debt

The yield on Spain’s 10-year debt yesterday climbed to a euro-era record of 7.636 percent, while the rate on similar- maturity Italian debt reached 6.598 percent, a level unseen since Jan. 17.

Elsewhere in Europe, officials representing Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- arrived in Athens yesterday to assess how far from bailout terms the country has strayed. German Vice Chancellor Philipp Roesler told broadcaster ARD on July 22 that he is “very skeptical” Greece can be rescued.

Australian Inflation

Australia’s consumer prices rose 1.2 percent last quarter from a year earlier, the statistics bureau said in a statement today. That compares with the 1.3 percent rise predicted by economists surveyed by Bloomberg News and 1.6 percent for the previous quarter. The RBA aims to keep annual underlying inflation in a range of 2 percent to 3 percent.

The price data doesn’t give a “green light for the Reserve Bank to move rates any time very, very soon,” Ivan Colhoun, head of Australian economics and property research at Australia & New Zealand Banking Group Ltd. (ANZ), said in an interview on Bloomberg Television. The market was “looking for a number that said the economy is much, much weaker than the RBA’s thinking. We didn’t get that in the number today.”

Interest-rate swaps indicate a 57 percent chance the Reserve Bank will lower its interest rate by 25 basis points at its next meeting on Aug. 7, according to data compiled by Bloomberg. That compares with a 77 percent chance indicated a yesterday.

Australia’s central bank reduced borrowing costs in May and June as Europe’s sovereign debt crisis threatened global growth and China’s economy slowed. It kept its key rate unchanged at 3.5 percent this month, citing stronger domestic growth momentum.

‘Good Shape’

Along with the inflation report, the Conference Board’s leading economic index for Australia rose 0.4 percent in May to 123.6, according to a statement released today. Australian Treasurer Wayne Swan said today inflation is “contained” and the domestic economy is in “good shape.”

The kiwi declined even after a report showed New Zealand’s annual trade deficit unexpectedly narrowed in the year through June. Imports exceeded exports by NZ$747 million ($584 million), in the 12 months through June compared with a revised NZ$876 million shortfall in the prior period, Statistics New Zealand said today in Wellington. The median estimate of economists in a Bloomberg survey was a NZ$1 billion deficit.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was at 2.55 percent.

The Reserve Bank of New Zealand is scheduled to decide on monetary policy tomorrow, with economists predicting that the central bank will keep its benchmark interest rate unchanged at 2.5 percent.

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