Aussie Dollar Set for Biggest Yearly Drop Since ’08 on Fed Taper

Australia’s dollar headed for its biggest yearly decline since 2008 as signs of improvement in U.S. economy boosted expectations the Federal Reserve will continue to scale back stimulus that has debased the greenback.

The Aussie dollar weakened today, extending the worst weekly run of losses in more than three decades before data which may show expansion in Chinese manufacturing slowed. Iron ore ports on Australia’s northwest coast began shutting down over the weekend before Tropical Cyclone Christine hits land tonight, after being upgraded to a Category 3 storm by Australia’s Bureau of Meteorology. New Zealand’s dollar declined for a sixth day versus the U.S. currency.

“The big theme has been Fed tapering,” said Janu Chan, economist at St. George Bank Ltd. in Sydney. “With that set to continue into 2014, we’ll expect the Aussie to come under some further pressure over the next year.”

Australia’s dollar fell 0.3 percent to 88.43 U.S. cents as of 5:30 p.m. in Sydney from Dec. 27, when it capped a 10th consecutive weekly decline, the longest losing streak since exchange controls were scrapped in 1983. The Aussie has fallen 15 percent this year, the sharpest drop since 2008. It slid 0.1 percent to NZ$1.0862 and 93.11 yen today.

The kiwi lost 0.1 percent to 81.40 U.S. cents from last week, down 0.7 percent since Dec. 20. New Zealand’s currency has lost 1.8 percent this year. It bought 85.73 yen.

Australia’s 10-year government bond yield was little changed at 4.27 percent, after earlier rising to as high as 4.32 percent.

Cyclone Christine

Port Hedland, the largest iron ore-export terminal, shut down yesterday morning as the cyclone nears the Pilbara coast. The port of Dampier closed last evening, said acting Chief Executive Officer Paul Toussaint-Jackson. Australia’s cyclone season typically runs from November to April with storms affecting shipping of commodities and potentially shutting offshore oil and gas production.

“It’s still early days in determining what kind of damage the cyclone would have on iron-ore production,” said St. George’s Chan. “The bigger picture is that, because of the investments over the past decade or so, production capacity has increased greatly, so over the next year we should still continue to see the trend improving as long as Chinese demand is maintained.”

China Manufacturing

China’s Purchasing Managers’ Index (CPMINDX) probably fell to 51.2 this month from 51.4 in November, according to the median estimate of economist surveyed by Bloomberg News before the National Bureau of Statistics and China Federation of Logistics and Purchasing data due Jan. 1. Numbers above 50 signal expansion. China is the biggest trading partner for both Australia and New Zealand.

In the U.S., pending home sales increased 1 percent in November from the previous month, economists in a separate Bloomberg poll forecast before that report today.

The Fed said Dec. 18 it will cut monthly asset purchases in January to $75 billion from $85 billion. Policy makers will reduce bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said in a Bloomberg survey published Dec. 19.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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

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