Aussie Declines Toward Two-Month Low on China Data, Fed Outlook

Australia’s dollar fell toward a two-month low after a private report showed China’s manufacturing expanded at a slower pace, damping prospects for the South Pacific nation’s commodity exports.

The Aussie dropped yesterday by the most in three months after minutes the Federal Reserve’s latest meeting signaled that $85 billion of monthly bond purchases could be reduced in the coming months. The International Monetary Fund said Australia’s currency “looks overvalued by around 10 percent.” New Zealand’s kiwi dollar slid along with Asian stocks.

“A shift in China away from investment-intensive and commodity-hungry growth toward more consumption-oriented growth will be negative for the Aussie dollar,” said David Forrester, a senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. Today’s manufacturing report “shows that China’s economic recovery remains sideways.”

The Aussie dropped 0.4 percent to 92.99 U.S. cents as of 5:08 p.m. in Sydney after slumping 1.1 percent yesterday, the most since Aug. 21. It touched 92.69 on Nov. 12, the weakest since Sept. 16. The kiwi fell 0.3 percent to 82.49 U.S. cents following a 1.2 percent tumble, the biggest since Oct. 23.

The MSCI Asia Pacific Index of shares slid 0.6 percent, declining for a third day.

HSBC Holdings Plc and Markit Economics said today their preliminary Purchasing Managers’ Index for Chinese manufacturing was 50.4 in November. That trailed the 50.8 median estimate among economists surveyed by Bloomberg News, while remaining above the 50 threshold that indicates expansion.

Aussie Bonds

Australia’s bonds fell for a fifth day following a decline in Treasuries on concern the Fed will start to taper stimulus that’s propped up asset prices worldwide.

The yield on the South Pacific nation’s 10-year government note added seven basis points, or 0.07 percentage point, to 4.34 percent, the highest since March 2012. The U.S. yield touched 2.81 percent, a level unseen since Sept. 18.

Fed policy makers “generally expected” that improvement in U.S. employment data would “warrant trimming the pace of purchases in coming months,” according to the record of the Federal Open Market Committee’s Oct. 29-30 gathering, released yesterday in Washington.

The 120-day correlation between the Aussie and the benchmark U.S. 10-year yield was minus 0.36. It fell to minus 0.38 last month, the lowest since December 2006, from as high as 0.68 in November 2011.

“At this stage, tapering is the dominant driver instead of global growth,” said David de Ferranti, a Sydney-based market analyst at FXCM Inc. “It’s possible that U.S. dollar demand will outweigh demand for the Australian dollar as a risk currency” toward the end of March, he said.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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