Aussie Falls After RBA Minutes Amid China, Europe Concern

Australia’s dollar weakened versus most major peers after minutes of the Reserve Bank’s meeting this month showed officials saw the currency’s strength as a risk to the economy, signaling scope to cut interest rates.

The so-called Aussie fell against the dollar and yen as concern about Europe’s debt crisis and mounting tensions between China and Japan dimmed the allure of higher-yielding assets. Australia’s currency has declined from a six-month high reached last week after the U.S. Federal Reserve announced a third round of asset purchases to bolster the economy. Demand for New Zealand’s kiwi dollar was tempered amid global equity declines.

“It does seem that there is a degree of skepticism that the Aussie can make substantial gains simply on the back of the Fed printing more money,” said Sean Callow, a Sydney-based senior currency strategist at Westpac Banking Corp. (WBC), Australia’s second-biggest lender. “We’ve had a bit of a soft start to the week on a handful of modest negatives that all seem to add up to an excuse for profit taking.”

The Australian dollar dropped 0.2 percent to $1.0460 as of 4:47 p.m. in Sydney. The Aussie climbed to $1.0625 on Sept. 14, the highest since March 20. It dropped 0.2 percent to 82.26 yen. The kiwi bought 82.77 U.S. cents from 82.62 yesterday and was little changed at 65.09 yen.

Australia’s 10-year yield fell 10 basis points to 3.33 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped to 2.745 percent from 2.77 percent.

Stock Declines

The Standard & Poor’s 500 Index (SPX) of U.S. shares lost 0.3 percent yesterday after last week posting the strongest close since 2007, while the Stoxx Europe 600 Index declined 0.3 percent. The MSCI Asia Pacific Index fell 0.2 percent.

The RBA released today records of its meeting on Sept. 4 when policy makers held the overnight cash rate target at 3.5 percent. “The current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth,” according to the meeting minutes.

Central bank officials “acknowledged risks from China and weaker commodity prices in particular and thus have a bias to cut, but did not show real urgency,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “I think risks are a bit more weighted to the downside” for the Aussie, he said.

China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.

October Bets

Interest-rate swaps data compiled by Bloomberg show traders see about a 78 percent chance policy makers will cut the cash rate by at least 25 basis points on Oct. 2, up from 57 percent odds seen two weeks ago.

RBA Assistant Governor Guy Debelle said in the text of a speech today that monetary policy remains “very effective” in a nation where rising funding costs mean lenders frequently don’t pass on interest-rate cuts in full. Officials have lowered the bank’s benchmark by 125 basis points in the space of seven months beginning November.

A territorial dispute between China and Japan is putting at risk a trade relationship that’s tripled in value in the past decade to more than $340 billion.

Toyota Motor Corp. and Nissan Motor Co. halted production at some plants while Panasonic Corp. (6752) reported damage to its operations in China as protesters smashed store fronts and cars in demonstrations sparked by Japan’s purchase last week of islands claimed by both countries.

In Germany, the ZEW Center for European Economic Research is forecast to say its index of investor and analyst expectations, which aims to predict economic developments six months in advance, was at minus 20 in September, according to a Bloomberg News survey of economists. The gauge slid to minus 25.5 last month, the lowest this year.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

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

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