The Australian and New Zealand dollars fell for a third day before the Federal Reserve publishes minutes of its last meeting, which may provide clues on when U.S. policy makers plan to slow stimulus that has inflated asset prices around the world.
The Aussie extended losses that have made it the worst performing Group of 10 currency this year after the Reserve Bank signaled yesterday that more interest rate cuts are possible. New Zealand’s dollar slid to the lowest level in a week as the country’s central bank said new lending curbs could reduce house-price inflation in half.
“If we do see a reiteration that the Fed will start tapering as early as September, I think 90 U.S. cents will be breached on the downside, bringing 88 1/2 into play,” said Michael Judge, a dealer in Sydney at OZForex Pty Ltd., an online currency company, referring to the Australian dollar. “Broader-term weakness in the Aussie is still very much intact.”
Australia’s currency slid 0.5 percent to 90.29 U.S. cents as of 4:48 p.m. in Sydney from yesterday, after earlier reaching 90.18, the lowest since Aug. 8. It declined 1.2 percent over the previous two days.
The New Zealand dollar dropped 0.6 percent to 79.31 U.S. cents, after touching 79.10, the lowest since Aug. 7. It lost 1.1 percent yesterday, the most since Aug. 1.
Australia’s 10-year bond yield was little changed at 3.98 percent, while its three-year yield held at 2.73 percent.
The Australian dollar has tumbled 11 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The New Zealand dollar has lost 0.7 percent, while the U.S. currency has gained 4.2 percent.
The Fed’s minutes of its July meeting due today may point to whether policy makers will start reducing their $85 billion of monthly bond purchases as soon as their Sept. 17-18 gathering. The central bank’s first step may be tapering purchases by $10 billion at that meeting, according to a Bloomberg survey concluded last week.
The RBA said in minutes yesterday of its Aug. 6 meeting that “members agreed that the bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further.” Policy makers reduced the benchmark rate to a record-low 2.5 percent at that gathering.
Traders see 60 percent odds that the RBA will reduce the benchmark interest rate again by the end of the year, interest-rate swaps data compiled by Bloomberg show. They see a 11 percent chance that the Reserve Bank of New Zealand will raise its benchmark from an all-time low of 2.5 percent in the same period.
New Zealand’s dollar slid as the country’s central bank forecast that house-price inflation could slow to half its current rate as a result of new mortgage-lending restrictions.
Lending limits announced by the central bank yesterday could reduce house-price inflation by between 1 percentage point and 4 percentage points in the first year, the Reserve Bank of New Zealand said in a Regulatory Impact Assessment published on its website. House-price inflation is 8.1 percent, the fastest since January 2008, according to Quotable Value New Zealand.
The RBNZ wants to deflate the housing market without raising rates, which would risk fueling demand for the kiwi.
“Although the intention to cool the housing market may decrease the need to increase interest rates anytime soon, it is highly questionable if such measures will be sufficient in decreasing the risk of a major housing bubble,” Manuel Oliveri, a currency strategist at UBS AG in Zurich, wrote in a research note dated today. “NZD upside risk remains intact.”
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