Australian Dollar Remains Lower on European Slump Concern
The Australian dollar remained lower before a report forecast to show French consumer confidence fell amid concern disagreement among the euro region’s leaders is curbing prospects for growth.
Demand for the so-called Aussie and the New Zealand currency was limited after a senior ally of German Chancellor Angela Merkel said Spain’s Prime Minister Mariano Rajoy must stop prevaricating and decide whether the country needs a full rescue. The South Pacific nations’ currencies briefly gained after a leading indicator for China’s economy rose.
“Markets are still cautious,” said Alvin Pontoh, a Singapore-based strategist at TD Securities Inc. “Europe is still going to be the key event this week. If we see a not-so- favorable outcome from Spain, we could see the Aussie come down.”
Australia’s currency was little changed from yesterday at $1.0432 as of 5:28 p.m. in Sydney, after falling 0.3 percent in New York. It traded at 81.14 yen from 81.16.
New Zealand’s dollar, nicknamed the kiwi, traded at 82.53 U.S. cents from 82.29 yesterday, when it dropped 0.8 percent. The currency was at 64.19 yen from 64.06.
The Aussie has weakened 1.5 percent in the past month, the second-worst performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s currency was little changed over the same period.
Spanish leader Rajoy “must spell out what the situation is,” Michael Meister, finance spokesman for German Chancellor Merkel’s Christian Democratic Union, said in an interview in Berlin yesterday. The fact he’s not doing so shows he “has a communications problem. If he needs help he must say so,” Meister said.
“It looks as though the unstable situation in Europe could last for some time,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “The Australian dollar is looking softer amid uncertainty over whether Spain will ask for aid.”
Elsewhere in Europe, a report tomorrow will probably show a gauge of French consumer confidence fell to 86 in September from 87 last month, according to the median estimate of economists surveyed by Bloomberg News. That would be the lowest since February.
Australian bonds advanced before the central bank’s policy board meets on Oct. 2. The yield on the benchmark 10-year note fell 7 basis points, or 0.07 percentage point, to 3.16 percent, the lowest since Sept. 12.
“If we see another significant move up in the Aussie dollar to $1.06-$1.07, I think the RBA could lean against cutting rates to bring the currency down,” TD’s Pontoh said.
Swaps indicate an 83 percent chance policy makers will cut the overnight cash-rate target to 3.25 percent from 3.5 percent at the meeting, according to data compiled by Bloomberg.
The RBA said Australian households are building a financial cushion by repaying mortgages faster and saving more, while businesses are indicating renewed willingness to borrow.
“Given the large share of households with mortgage prepayment buffers, along with relatively low unemployment and moderate income growth, most households appear well placed to meet their debt obligations,” the central bank said in its semiannual financial stability review released in Sydney today.
The Aussie had pared losses after the Conference Board said its leading economic index for China rose 1.7 percent to 240.4 in August from the previous month. China is Australia’s biggest trading partner and New Zealand’s second-largest export market.
“Risk aversion eased after the release of the Chinese economic indicator,” supporting riskier assets such as the the Australian dollar, said Yuji Saito, director of the foreign exchange department in Tokyo at Credit Agricole SA. (ACA)
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