Aussie Drops on Rate-Cut Bets Before Inflation Report
The Australian dollar slid versus most of its major peers before a report this week that may show inflation held near the slowest in 13 years, providing scope for the central bank to cut borrowing costs.
The so-called Aussie remained lower following a two-day drop against its U.S. counterpart after Australia’s government said it will reduce spending to help deliver a budget surplus this fiscal year, boosting expectations the Reserve Bank will cut its key rate at a meeting next month. The currency also weakened as Asian stocks extended a global decline in equities.
“The Aussie is soft and likely to remain soft heading into the inflation release,” said Emma Lawson, a Sydney-based foreign-exchange strategist at National Australia Bank Ltd. “The currency is looking at the broader global conditions this week and we’re clearly starting off on a more subdued note.”
Australia’s dollar was at $1.0327 at 5:15 p.m. in Sydney from $1.0331 on Oct. 19, when it fell 0.3 percent. It bought 82.19 yen from 81.93 at the end of last week. Australian bonds advanced, pushing the yield on Australia’s 10-year note down by four basis points, or 0.04 percentage point, to 3.14 percent.
New Zealand’s dollar traded at 81.87 U.S. cents from 81.57 last week. The country’s markets are closed today for a holiday.
The MSCI Asia Pacific Index of shares fell 0.2 percent after earlier falling as much as 0.8 percent. The Standard & Poor’s 500 Index (SPX) of U.S. shares dropped 1.7 percent on Oct. 19, and the Stoxx Europe 600 Index declined 0.8 percent.
The so-called trimmed mean gauge of core consumer prices in Australia probably rose 2.2 percent in the three months ended Sept. 30 from a year earlier, according to the median estimate of economists surveyed by Bloomberg News before the statistics bureau publishes its inflation report on Oct 24. That compares with a 2 percent increase in the previous quarter, the slowest pace since June 1999. The Reserve Bank of Australia targets average annual inflation of 2 percent to 3 percent.
Interest-rate swaps data compiled by Bloomberg show traders see a 97 percent chance policy makers will cut the overnight cash rate target by 25 basis points to 3 percent at their next meeting on Nov. 6. The probability has increased from 89 percent a week ago.
“While global headwinds, a high dollar and changing consumer behavior are weighing on some sectors, the Australian economy is expected to outperform every major advanced economy this year and next, with growth underpinned by strong investment, strong growth in export volumes and solid growth in consumption,” Treasurer Wayne Swan said in a statement in Canberra today accompanying the government’s mid-year budget review.
The government’s underlying cash surplus will be A$1.08 billion ($1.12 billion) for 2012-13, compared with a A$1.54 billion surplus seen in May, according to the review. Spending is forecast to be A$363.2 billion compared with a May projection of A$364.2 billion, while the revenue estimate was cut to A$367 billion from $A368.8 billion.
“The extra spending cuts aren’t a welcome outcome from an Australian growth perspective,” Commonwealth Bank of Australia (CBA) analysts including Sydney-based Alex Stanley wrote in a note to clients. “The additional fiscal tightening unveiled today reminds us that the burden for managing slower growth and higher unemployment will continue to fall to the RBA.”
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