Aussie, Kiwi Fall as China Factory Data Fuel Slowdown Concerns

The Australian and New Zealand dollars fell against most of their major counterparts after a report signaled manufacturing slowed more than estimated in China, the biggest trading partner of both nations.

The so-called Aussie slid for a third day against the U.S. dollar after the data added to signs the global economic recovery is struggling, reducing the appeal of riskier assets. Australian and New Zealand government bond yields touched their lowest levels this year.

“We’re not seeing a sustained period of recovery in the China data, which is a bit of a concern,” said David Forrester, a senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. “It’s a reflection of weaker global growth, and it’s not good news for the Aussie or the kiwi.”

The Australian dollar slid 0.3 percent to $1.0242 at 5:19 p.m. in Sydney after touching $1.0221, the lowest since March 11. New Zealand’s kiwi dollar dropped 0.5 percent to 83.86 U.S. cents after reaching 83.64 cents, the weakest since April 4.

The HSBC Manufacturing Purchasing Managers’ Index for China slipped to 50.5 this month from 51.6 in March. Economists in a Bloomberg News survey predicted 51.5. Readings above 50 signal expansion.

Data on April 15 showed China’s economy slowed in the first quarter. Gross domestic product expanded 7.7 percent, compared to 7.9 percent growth in the three months to December. Economists projected 8 percent growth in a Bloomberg poll.

Rate Expectations

“The fact that we keep seeing Chinese data print to the weaker side of expectations is keeping the market fairly comfortable pricing in further RBA easing,” said Michael Turner, a Sydney-based fixed-income strategist at Royal Bank of Canada. “More broadly, you’ve got to suspect with expanding global central bank balance sheets that global yields are staying low, and Aussie is being sucked down toward the rest.”

Australia’s 10-year government bond yield touched 3.13 percent, the lowest since Dec. 11. New Zealand’s 10-year yield fell to 3.22 percent, the least since a record low on July 26.

Interest-rate swaps data compiled by Bloomberg show traders see an 83 percent chance Australia’s Reserve Bank will cut the benchmark rate from 3 percent by its September meeting. That compares to 52 percent odds a month ago.

‘Weak Inflation’

Australian consumer price inflation probably rose 0.7 percent in the first three months of this year compared to the quarter before, according to the median of economists surveyed by Bloomberg before the data are released tomorrow.

“A weak inflation figure gives them room to cut again if they have to,” said Spiros Papadopoulos, a senior economist at National Australia Bank Ltd. in Melbourne. “But to see that cut we really need to see some weakness in activity.”

The Reserve Bank of New Zealand decides monetary policy tomorrow. All economists surveyed by Bloomberg forecast the benchmark rate will stay at 2.5 percent.

RBNZ Governor Graeme Wheeler said March 14 that the country’s “overvalued” currency is weighing on the economy and that he expects to hold the key rate at a record-low 2.5 percent through the end of the year.

The RBNZ may “invoke language associated with exchange rate intervention, such as labeling the kiwi ‘unjustified’ and ‘exceptional’,” Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. (WBC), wrote in a research note today.

Best Performer

The New Zealand dollar has strengthened 5.7 percent over the past six months, the most among 10 developed market currencies tracked by the Bloomberg Correlation Weighted Indexes. The Australian dollar has gained 1.7 percent.

“Ultimately New Zealand policy makers know they have to focus on domestic issues rather than the exchange rate which is historically rather volatile,” Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California, wrote in an e-mail.

BlackRock Inc., the world’s biggest money manager, is shunning the kiwi dollar, saying it’s become too expensive and remains vulnerable to a slowdown in China.

Australian Prime Minister Julia Gillard refrained from criticizing China’s exchange rate in an interview yesterday. Asked whether the yuan was overvalued, she said “I won’t be specifying what level any one currency should be at, but philosophically, we do look for freer-trading currencies.”

Gillard added her voice to global endorsements of Japan’s stimulus efforts. “The Japanese economy certainly does need to take steps to pursue growth, so we are pleased that the new prime minister seems very focused on getting growth,” she said.

The Australian dollar fell 0.8 percent to 101.19 yen, while New Zealand’s currency dropped 0.9 percent to 82.84 yen. In the past six months, the Aussie has risen 23 percent against the yen while the kiwi has gained 28 percent.

To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

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

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