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Aussie Slides Versus Peers as Volatility Climbs to 6-Week High

The Australian dollar slid versus all 16 major counterparts as volatility headed for the highest close in six weeks, damping demand for the currency.

The Aussie weakened against its U.S. and Japanese peers as investors continued to sell Asian emerging-market holdings and before a report that may show home-price gains in the world’s biggest economy remained near a seven-year high, boosting the case for a reduction in Federal Reserve stimulus. New Zealand’s currency fell, after yesterday advancing by the most in two weeks, as a global decline in equities curbed appetite for higher-yielding assets.

“Increased volatility historically has placed some downward pressure on the Aussie,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “In terms of what’s contributed to it, you’ve got concerns in the emerging-market space. And the other factor is that historically, volatility does pick up in and around large turning points in U.S. monetary policy, and we are on the cusp of one at the moment.”

The Australian dollar lost 0.8 percent to 89.58 U.S. cents as of 4:42 p.m. in Sydney. It fell 1.1 percent to 87.94 yen. New Zealand’s currency slid 0.6 percent to 78.02 U.S. cents after rising 0.6 percent yesterday, the biggest one-day gain since Aug. 14. It declined 1 percent to 76.60 yen.

The Standard & Poor’s 500 Index fell 0.4 percent yesterday. The MSCI Asia Pacific Index of shares lost 0.7 percent today.

Volatility Climbs

One-month volatility for the Aussie jumped 68 basis points this week to 13.03 percent today, set for the highest close since July 16.

The Fed currently buys $85 billion of debt a month to bolster growth. The U.S. central bank will reduce its purchases at its next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.

Exchange data compiled by Bloomberg show overseas investors have pulled $493.4 million from Indian stocks this month as of Aug. 23, as the nation’s currency plunged to a record.

The Aussie has fallen 11 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Its New Zealand peer has declined 1.7 percent.

The statistics bureau may say tomorrow Australia’s construction work done in the three months through June climbed 1 percent from the previous period, when it fell 2 percent, according to the median forecast of economists polled by Bloomberg News. If confirmed, that would be the biggest advance since the period ended September 2012.

‘Growth Hole’

“Housing investment contribution of approx 0.2% GDP won’t fill looming growth hole,” Robert Mead, the Sydney-based money manager for Pacific Investment Management Co., which runs the world’s biggest bond fund, wrote in a Twitter post.

Australia’s economy will probably expand 2.5 percent this year after growing 3.6 percent in 2013, analysts in another Bloomberg survey predicted.

Australia’s 10-year (GACGB10) government bond yield dropped eight basis points, or 0.08 percentage point, to 3.93 percent. The rate on sovereign debt due in three years fell six basis points to 2.72 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.41 percent.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

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

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