The Australian and New Zealand dollars fell, halting two days of gains, after an unprecedented levy on Cypriot banks raised concern a new round in Europe’s debt crisis will damp demand for higher-yielding assets.
Australia’s currency touched a one-week low against the yen and local bonds rallied after Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. Losses in the so-called Aussie were limited before the Reserve Bank of Australia releases minutes of its latest meeting tomorrow.
“Aussie, kiwi opened this week’s trade quite a bit lower,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “Whilst there are no direct linkages between Australia, New Zealand and Cyprus, the currencies are reacting to changes in market sentiment. There could be some fears in the market that if another sovereign required a bailout, they may tax the deposits of that particular country as well.”
The Australian currency fell 0.5 percent to $1.0358 as of 4:19 p.m. in Sydney from March 15, when it touched $1.0415, the highest since Feb. 5. It dropped 1.1 percent to 98.06 yen, after earlier touching 97.06, the lowest since March 7.
The New Zealand dollar weakened 0.4 percent to 82.37 U.S. cents. The currency, nicknamed the kiwi, touched 77.01 yen, the lowest since March 5, before trading at 77.96, down 1.1 percent from last week.
Australia’s three-year bond yield fell 18 basis points, or 0.18 percentage point, to 2.94 percent. The 10-year yield declined 16 basis points to 3.47 percent. New Zealand’s 10-year rate slid nine basis points to 3.71 percent.
While Cyprus accounts for less than half a percent of the 17-nation euro economy, the raid on bank accounts risks triggering new convulsions in the financial crisis that began in 2009 in Greece.
The development in Cyprus is credit negative for depositors across Europe, Moody’s Investors Service said in a report today. Implications for sovereign creditors are more finely balanced and less clear, the company said.
The Standard & Poor’s 500 Index (SPX) slid 0.2 percent on March 15. The MSCI Asia Pacific Index sank 1.8 percent today.
In Australia, new vehicle sales held steady in February from the previous month, when they fell a revised 2.2 percent, the government statistics agency said in Sydney today.
The RBA will release tomorrow minutes of its March 5 meeting when policy makers left the developed world’s highest benchmark interest rate unchanged.
Interest-rate swaps data compiled by Bloomberg show traders see an 81 percent chance the central bank will refrain from cutting the benchmark rate at the next meeting on April 2.
“It will be more of the offshore development that will drive the Aussie this week,” said Commonwealth Bank’s Dragicevich. “Regardless, we can’t see any reason why the Aussie will break out of its recent trading range. We’ve seen it struggle above $1.04, but find solid support when it gets below $1.03.”
In New Zealand, an index of household sentiment fell to 110.8 in the first quarter from 111.1 in the previous three- month period, Westpac Banking Corp. (WBC) and McDermott Miller Ltd. said in an e-mailed statement today.
New Zealand’s two-year swap rate, a fixed payment made to receive a flowing rate, fell 3 1/2 basis points to 2.84 percent, after earlier touching 2.81 percent, the lowest since Jan. 24.
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