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Aussie, Kiwi Tumble Versus Peers as Volatility Triggers Selling

The Australian and New Zealand dollars slumped against their major peers as market volatility prompted traders to retreat from higher-yielding assets.

The Aussie resumed a decline against the greenback after rallying briefly following a report that showed Australia’s unemployment rate was lower than expected in May. New Zealand’s kiwi dollar tumbled after the nation’s central bank kept borrowing costs unchanged at a record low. Australian bond yields rose as Asian stocks fell as investors shifted toward refuge assets.

“The volatility we’ve seen in markets over the past couple of weeks has led to an unwind of entrenched positions,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG. “The market has been committed to long Asia positions for a considerable period of time.” A long position is a bet that an asset’s price will appreciate.

Australia’s dollar fell 0.4 percent to 94.49 U.S. cents as of 1:53 p.m. in Sydney after gaining as much as 0.4 percent. It touched 93.26 on June 12, the lowest since Sept. 14, 2010. The kiwi slumped 0.9 percent to 79.15 U.S. cents.

The MSCI Asia Pacific Index of stocks fell as much as 3 percent, erasing this year’s gains. The yield on Australia’s 10-year government bond declined as much as six basis points, or 0.06 percentage point, to 3.39 percent.

One-month implied volatility for the Aussie was at 14.08 percent, based on currency options, after reaching 14.47 percent on June 11, the highest since June 5, 2012.

Australia’s currency has tumbled 6.5 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes. The New Zealand dollar was the second-worst performer with a 5.4 percent slide.

Record Shorts

Futures traders increased bets to a record that the Aussie will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission from last week showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Aussie compared with those on a gain -- so-called net shorts -- was 58,550 on June 4, the most bearish in data going back to January 1993.

The Aussie rose briefly after data showed that Australian employers unexpectedly boosted payrolls in May. The number of people employed rose by 1,100, the statistics bureau said in Sydney, after rising by a revised 45,000 in April. Last month’s increase compares with the median estimate of a 10,000 drop in a Bloomberg News survey of economists. The jobless rate fell to 5.5 percent from a revised 5.6 percent.

Rate Bets

Benchmark central bank rates are 2.75 percent in Australia and 2.5 percent in New Zealand. Although both are record lows, they compare with as rates as low as zero in the U.S. and Japan, attracting investor flows into the South Pacific nations’ higher-yielding assets.

Traders are pricing in 34 basis points of interest-rate cuts by the Reserve Bank of Australia within 12 months, according to a Credit Suisse AG index based on swap contracts. They see 36 basis points of increases in the Reserve Bank of New Zealand’s Official Cash Rate.

“We expect to keep the OCR unchanged through the end of the year,” RBNZ Governor Graeme Wheeler said in a statement in Wellington today after leaving the benchmark unchanged, extending a two-year pause. “Despite having fallen over the past few weeks, the New Zealand dollar remains overvalued.”

“If we see the opportunity to try, for example, to take the tops off any exchange-rate peak then we may exercise intervention,” Wheeler said at a briefing after the announcement.

The currency has declined more than 5 percent against the greenback since Wheeler first said on May 8 he was intervening to weaken it. He sold a net NZ$256 million ($203 million) in April, according to central bank data. In a May 30 speech, Wheeler said he was prepared to step up his efforts.

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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