The Australian dollar extended this quarter’s biggest decline among major counterparts after the Reserve Bank indicated the currency may weaken further.
The Aussie slid against all 16 of its major peers after the minutes from this month’s central bank meeting showed policy makers see room to ease borrowing costs further. The Australian and New Zealand dollars fell for a third day against the greenback before the Federal Reserve begins a policy meeting today that may point to when it will curtail quantitative easing.
“The interpretation by the markets is the RBA is giving the green light for the Aussie to go lower,” said David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne. “Positioning in the Aussie has been excessively short, so it’s probably got some support on the downside.” A short position is a bet an asset’s price will decline.
Australia’s currency weakened 0.6 percent to 94.87 U.S. cents as of 4:40 p.m. in Sydney from yesterday, when it slipped 0.3 percent. New Zealand’s kiwi dollar lost 0.3 percent to 79.71 U.S. cents, following a 1.3 percent drop in the past two days.
“It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of growth in the economy,” according to minutes released today from the RBA’s June 4 meeting, when the central bank left its benchmark interest rate unchanged at a record-low 2.75 percent. “The board also judged that the inflation outlook as currently assessed might provide some scope for further easing, should that be required to support demand.”
The Aussie has tumbled 9.8 percent in the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar is the next biggest decliner, with a 4 percent drop.
Futures traders extended record bets 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 63,277 on June 11, the most in data going back to January 1993.
Trading in over-the-counter options on the Aussie against the U.S. dollar jumped to $524 million, the most-traded pair in data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the exchange rate accounted for 26 percent of trades compared with 19 percent for dollar-yen options, the second-most traded pair.
The U.S. Federal Open Market Committee starts a two-day policy meeting today. Chairman Ben S. Bernanke said last month the Fed may consider reducing its purchases of $85 billion in bonds per month within “the next few meetings” if there are signs of sustainable improvement in the labor market.
“Short term, I see quite a bit of volatility and uncertainty” in currency markets, said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “And that’s largely to do with the outlook for the U.S. and Fed policy. Among officials there are mixed signals about what they want to do, whether to taper or not, and I don’t think data has made the argument stronger either way.”
The Fed will trim its quantitative-easing program to $65 billion of bond purchases a month at their Oct. 29-30 meeting, according to a Bloomberg News survey of economists this month.
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