The Aussie retreated from its strongest this month against the U.S. currency as Asian stocks fell, reducing demand for higher yielding assets. New Zealand’s dollar held its biggest gain in almost two weeks against the greenback after a successful milk powder auction reduced concern about a contamination recall in China. The Reserve Bank of Australia said it would monitor the economy to decide on further policy action when it cut the benchmark rate to a record yesterday.
“The general outlook for the Australian economy, despite what’s going on in the housing market right now, seems to be one of concern, particularly heading into tomorrow’s employment (NZLFQOQ) report,” said Jim Vrondas, the Sydney-based chief currency and payment strategist at OzForex Pty. “Given that the Aussie failed to sustain any move above 90 U.S. cents after the RBA, it’s only natural that we see markets start to sell off again.”
The Aussie weakened 0.2 percent to 89.64 U.S. cents as of 5:02 p.m. in Sydney from yesterday, when it touched 90.05, the highest since July 31. New Zealand’s dollar advanced 0.2 percent to 79.13 U.S. cents after climbing 1 percent yesterday. Australia’s currency fell 1.1 percent to 86.88 yen, while the kiwi dropped 0.7 percent to 76.66 yen.
The MSCI Asia Pacific index of stocks slumped 2 percent.
Australia’s unemployment rate probably rose to 5.8 percent in July, from 5.7 percent the previous month, according to the median estimate of economists in a Bloomberg News poll. That would be the highest since August 2009.
Home loan approvals in Australia rose 2.7 percent in June, from a revised 1.7 percent gain in May, the statistics bureau said today. Economists predicted a 2 percent gain.
“The housing finance data is a clear indication that some interest rate sectors of the Australian economy are responding to lower interest rates,” Michael Workman, a Sydney-based senior economist at Commonwealth Bank of Australia (CBA), wrote in a research note. “Further interest rate stimulus cannot be ruled out if the non-mining areas fail to respond.”
RBA Governor Glenn Stevens said in a statement yesterday after cutting the benchmark rate to 2.5 percent that the board “will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.”
The reduction was the second this year, and extends an easing cycle that began in November 2011, when the benchmark rate was lowered from 4.75 percent.
The central bank is trying to stimulate growth in manufacturing, construction and retail, as a record mining-investment boom wanes. The nation’s economy will expand 2.5 percent this year, slowing from 3.6 percent growth in 2012, according to the median estimate of economists.
Traders place 67 percent odds that the RBA will cut its benchmark again this year, interest-rate swaps data compiled by Bloomberg show. They see a 22 percent chance that the Reserve Bank of New Zealand will lift interest rates from a record-low 2.5 percent by year-end.
The Aussie has fallen 11 percent over the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar is the second-worst performer, with a 5.3 percent decline.
Auckland-based Fonterra Cooperative Group Ltd. said whole-milk powder prices for delivery across all contracts through February fell 1.6 percent in an auction today, the first decline in two months.
“What we saw from the auction was basically a vote of confidence in the New Zealand dairy industry, following the turmoil and fears we’ve seen over the past few days,” said Mike Jones, a currency strategist in Wellington at Bank of New Zealand Ltd.
Fonterra said on Aug. 3 that a dirty pipe in one of its processing plants may have tainted whey protein with a bacteria that causes botulism. China, New Zealand’s largest trading partner, has imposed a ban on imports of whey powder and another dairy ingredient, threatening export ties.
The kiwi dollar was also supported after a report showed New Zealand employers added workers at a faster pace than economists estimated in the three months to June, supporting the case for higher interest rates.
Employment rose 0.4 percent, or 8,000 jobs, from the first quarter when it surged a record 1.7 percent, Statistics New Zealand said in a report today in Wellington. The median forecast in a Bloomberg survey was for a 0.3 percent gain. The jobless rate rose to 6.4 percent from 6.2 percent, as the participation rate climbed to 68 percent.
“A strengthening economy is starting to flow through into the demand for labor,” said Mark Smith, senior economist at ANZ Bank New Zealand Ltd. in Wellington. “It remains a case of looking for the cash rate to move up at some stage in the first half of 2014.”
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