Aussie Weakens From Four-Month High as China’s Exports Decline

Australia’s dollar weakened from the strongest in more than four months after data showed China’s exports grew less than anticipated, adding to signs of a slowdown in the world’s second-largest economy.

Overseas sales increased 1 percent in July from a year earlier, following an 11.3 percent increase in June, the customs bureau said in a statement today in Beijing. That compared with the median estimate of economists for an 8 percent gain. New Zealand’s kiwi dollar is set for the biggest five-day drop in almost three months as Asian stocks extended losses following the data, sapping demand for riskier assets.

The Chinese report “underlies the fragilities of the Asian economic outlook at the moment,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. (WBC) in Singapore. “This makes me very cautious on the Aussie dollar at these kinds of levels and probably still suggests we’ve got a downside bias.”

Australia’s currency slid 0.6 percent to $1.0516 at 3:23 p.m. in Sydney from $1.0580 in New York yesterday, when it reached $1.0613, the most since March 20. It lost 0.6 percent to 82.62 yen. The kiwi fell 0.4 percent to 80.88 U.S. cents, and bought 63.56 yen from 63.80. It has weakened 1.2 percent since Aug. 3 versus the greenback, the steepest loss since May 18.

The MSCI Asia Pacific Index of regional stocks declined 0.8 percent, snapping a four-day advance.

Other reports this week showed Taiwan’s exports fell for a fifth month and Singapore’s economy contracted in the second quarter as the government trimmed its prediction for 2012 growth. In New Zealand, data yesterday showed that the jobless rate rose to a two-year high, while Prime Minister John Key signaled earlier in the week the central bank had room to ease policy further to support the economy.

Australian Economy

Losses in the so-called Aussie were limited after the Reserve Bank raised its growth forecast following its decision this week to leave interest rates unchanged.

The RBA predicted average gross domestic product growth of 3.75 percent in 2012, stronger than its May estimate of 3 percent, the central bank said in its quarterly monetary policy statement released today. It also highlighted risks that sustained currency strength could prove more of a drag on the economy than in the past.

Governor Glenn Stevens and his board kept the overnight cash-rate target unchanged at 3.5 percent on Aug. 7, citing a domestic expansion that’s weathering a global economic slowdown.

Rate Outlook

A Credit Suisse Group AG index based on swaps indicates traders are betting the central bank will lower rates by 62 basis points over the next 12 months, compared with 75 basis points indicated before this week’s policy decision.

Benchmark interest rates of 3.5 percent in Australia and 2.5 percent in New Zealand compare with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Ten-year government bond yields in Australia slid 10 basis points, or 0.1 percentage point, to 2.23 percent today, after its yield spread to Japanese bonds widened to 2.53 percentage points yesterday, the most since May 8.

There hasn’t been the kind of “marked deterioration in domestic data” to justify a rate cut by the RBA, said Mike Jones, a currency strategist in Wellington at Bank of New Zealand. “In short, markets are pricing out some of that easing. So net-net, that’s supporting the Aussie through a high- yield differential.”

Australia’s dollar has climbed 3.3 percent this year, the best performance after the kiwi among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net

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

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