Aussie, Kiwi Decline to 2013 Low Amid Slowing Global Inflation

The Australian and New Zealand dollars declined to the lowest this year amid concern slowing inflation globally will weigh on demand for commodities.

Both currencies weakened versus most major counterparts after data yesterday showed consumer prices fell both in the U.S. and euro region. The New Zealand dollar was set for a ninth weekly gain against its Australian counterpart on the diverging monetary-policy outlooks of the two nations.

“Market sentiment toward the Aussie is very bearish,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. (ANZ) “Inflation continues to go lower, commodity prices continue to react to the downside in response to that.”

The Aussie dropped 0.6 percent to 97.46 U.S. cents as of 2:39 p.m. in Sydney after earlier touching 97.36, the weakest since June 5. New Zealand’s dollar, known as the kiwi, slid to as low as 80.89 U.S. cents, a level unseen since Nov. 16, before trading at 81.01, down 0.7 percent from the close yesterday.

For this week, Australia’s dollar and the kiwi have both fallen 2.4 percent.

U.S. consumer prices dropped 0.4 percent in April from a month earlier, the biggest decrease since December 2008, while those in the euro region fell 0.1 percent last month. The Standard & Poor’s GSCI Index of 24 raw materials has slid 0.4 percent since May 10, extending its decline to a second week.

A gauge of consumer confidence in New Zealand climbed to a three-year high this month, according to a report today from Australia & New Zealand Banking Group Ltd. and Roy Morgan Research. Statistics New Zealand said separately that its index of producer input prices rose 0.8 percent in the first three months of this year, the most since June 2011.

Monetary Policy

Traders see an increase of 16 basis points in the Reserve Bank of New Zealand’s benchmark rate in the coming 12 months and a reduction of 34 basis points in Australia, according to Credit Suisse Group AG indexes based on overnight-index swaps.

The premium New Zealand’s two-year swap rate offers over its Australian equivalent increased to 14 basis points, a level unseen since April 2009. The rates are fixed payments made to exchange for floating ones.

New Zealand’s currency was at NZ$1.2036 per Australian dollar from NZ$1.2025, having gained 0.4 percent since May 10. A ninth week of gains in the kiwi would be the longest run since 2002.

“A lot of the positive momentum on the Aussie dollar has faded, and medium-term fundamentals have switched quite aggressively in favor of the kiwi dollar,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “The kiwi dollar is a new yield-chasing currency of choice.”

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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