Australia’s dollar fell from a four-month high as Chinese stocks dropped amid a jump in money-market rates, damping investor confidence in the outlook for the South Pacific nation’s biggest overseas market.
The currency climbed to a one-month high against its New Zealand counterpart after data showed inflation quickened more than forecast in the bigger nation, adding to prospects the Reserve Bank of Australia will halt cuts to borrowing costs. The kiwi slid against all 16 of its major peers as a technical indicator signaled the currency has risen too rapidly.
“The Aussie’s strength isn’t sustainable,” said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. Investors are sensitive to money-market rates in Asia’s largest economy because “they have skepticism about China’s financial system.”
The Australian dollar lost 0.6 percent to 96.52 U.S. cents as of 4:51 p.m. in Sydney after gaining as much as 0.5 percent to 97.58, the highest since June 4. New Zealand’s kiwi dropped 1.2 percent to 84.14 U.S. cents after advancing 0.7 percent yesterday.
The Shanghai Composite Index (SHCOMP) of shares slid 1.2 percent. The seven-day repurchase rate, a gauge of funding availability in China’s banking system, soared 42 basis points, the most since July 29. A basis point is 0.01 percentage point.
The New Zealand dollar’s 14-day relative-strength index against the greenback was at 70 yesterday, the level that signals an asset price may have climbed too rapidly and be poised for a reversal.
In Australia, the trimmed mean gauge of core consumer prices rose 0.7 percent in the three months ended Sept. 30 from the second quarter when it increased 0.6 percent, the Bureau of Statistics said in Sydney today. The median estimate of economists in a Bloomberg News survey was for a 0.6 percent climb in a gauge the RBA uses to monitor underlying inflation.
Swaps traders see an 82 percent chance the central bank will hold its key interest rate at 2.5 percent this year, compared with 54 percent odds estimated at the end of last month, data compiled by Bloomberg show.
Today’s CPI report “reinforces markets’ belief that the RBA will stay on hold and is done cutting rates for now, and that is positive for the Australian dollar,” said Divya Devesh, a foreign-exchange analyst in Singapore at Standard Chartered Plc. The currency is “probably getting a little bit out of their comfort zone, so we expect them to come back to a dovish tone and then eventually ease” in the first quarter, he said, referring to the central bank.
The RBA cut its key rate by 2.25 percentage points over the past two years to an all-time low, seeking to revive domestic demand as a mining boom peaks.
The Aussie has risen 2.7 percent since Oct. 1 when the Reserve Bank said in a policy statement that the currency was still weaker than levels in April. That contrasted with a Sept. 3 statement saying the exchange rate may “depreciate further over time.”
Australia’s dollar added 0.6 percent to NZ$1.1473 today after touching NZ$1.1495, the strongest since Sept. 12. It reached NZ$1.12 on Aug. 1, a level unseen since October 2008.
“The Aussie has a bit more momentum than the kiwi,” Takuya Kawabata, a Tokyo-based analyst at Gaitame.com Research Institute Ltd., a unit of Japan’s largest currency-margin company, said before the release of the inflation report. “The Aussie-kiwi has firmed around a low of NZ$1.12 and is rebounding. A rise above a mid-NZ$1.14 will open further upside to the Australian dollar.”
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