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Australia, N.Z. Dollars Fall as China Manufacturing Gauge Slides

The Australian and New Zealand dollars slid for the first time in four days, after a private report showed a contraction in China’s manufacturing industry unexpectedly deepened.

Australia’s three-year debt yields rose following data that showed the nation’s underlying inflation accelerated last quarter, reducing expectations the Reserve Bank will cut borrowing costs next month. The kiwi earlier touched a one-month high after a report that New Zealand’s trade surplus widened in June.

“On the day, we seem to be at the low ends of the range with China-related concerns continuing to weigh on the Aussie,” said Callum Henderson, the global head of currency research at Standard Chartered Plc in Singapore. “On a six- to nine-month view, we continue to expect the Australian dollar to be lower.”

Australia’s currency dropped 0.4 percent to 92.56 U.S. cents as of 4:40 p.m. in Sydney. New Zealand’s dollar fell 0.3 percent to 79.73 U.S. cents after touching 80.13, the strongest since June 19.

HSBC Holdings Plc and Markit Economics said today that their manufacturing Purchasing Managers’ Index for China slid to 47.7 in July on a preliminary basis from 48.2 last month. Economists had forecast in a Bloomberg News survey that the gauge would be unchanged. A level below 50 signals contraction.

Australian CPI

The trimmed mean gauge of core prices rose 0.5 percent from the previous quarter, the Bureau of Statistics said in Sydney today, matching the median forecast of economists surveyed by Bloomberg. The weighted-median gauge of inflation, a second core measure that excludes the largest price increases and declines, advanced 0.7 percent, compared with economists’ estimates for a 0.5 percent gain.

The yield on Australia’s benchmark three-year government note added three basis points, or 0.03 percentage point, to 2.62 percent. Traders see a 67 percent chance that the RBA will lower the overnight cash rate by 25 basis points from a record-low 2.75 percent on Aug. 6, down from 73 percent yesterday, data compiled by Bloomberg on overnight-index swaps show.

Futures traders were the most bearish ever on the Aussie, according to figures from the Washington-based Commodity Futures Trading Commission. The number of wagers by hedge funds and other large speculators on a decline in the currency exceeded those on a gain by 70,686 in the week ended July 16, the most for so-called net shorts on record dating back to 1993.

Aussie Shorts

“Every man and his dog is short Aussie-dollar, and that is one factor that is going to be supporting Aussie going forward,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “It’s going to take renewed concerns on the global growth front to really drive Aussie below 90 U.S. cents. For now, we think the bottom is probably in place.”

New Zealand’s trade surplus was NZ$414 million ($330 million) in June, up from a revised NZ$39 million a month earlier, the statistics bureau said today. That compares with the median economist estimate of NZ$105 million in a Bloomberg poll.

Reserve Bank of New Zealand Governor Graeme Wheeler, who is due to announce a policy decision tomorrow, will keep his country’s borrowing costs at 2.5 percent, a survey of economists showed. The nation’s two-year swap rate, a fixed payment made to receive floating rates that is sensitive to interest-rate expectations, rose one basis point to 3.2 percent.

“I’m fairly bullish on the New Zealand economy,” Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company, said before the reports on China’s manufacturing and Australia’s inflation. If the kiwi can close the week above 80 cents, there may be some more room for the currency to advance, he said.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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

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