Aussie Dollar Falls Before Fed Minutes on Bets Taper to Continue

The Australian dollar fell versus most of its major peers amid speculation the U.S. Federal Reserve will continue to reduce stimulus that has buoyed asset prices around the world.

The Aussie held its biggest decline in three weeks against the greenback before minutes are released of the Fed’s meeting last month, when policy makers decided to begin tapering bond purchases. A gauge of construction activity in Australia declined in December, a report today showed. The nation’s currency traded near a five-year low versus its New Zealand counterpart.

“Fed policy and a stronger U.S. dollar will likely drive the Aussie lower,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “There’s a key risk tonight with the minutes. Our view is that there’s enough strength in the U.S. economy to warrant tapering throughout most of 2014.”

Australia’s dollar was little changed at 89.24 U.S. cents as of 5:56 p.m. in Sydney from yesterday, when it declined 0.5 percent. It dropped 0.1 percent to NZ$1.0770, extending a 0.4 percent drop from yesterday. It touched NZ$1.0733 on Dec. 18, a level unseen since October 2008. New Zealand’s currency traded at 82.87 U.S. cents from 82.83.

The Aussie gained 0.3 percent to 93.66 yen and the kiwi strengthened 0.4 percent to 86.95 yen.

San Francisco Fed President John Williams said yesterday quantitative easing will probably end this year if the recovery unfolds as expected. The central bank may reduce its purchases in $10 billion increments and end the program in December 2014, according to the median estimate of economists surveyed by Bloomberg News on Dec. 19.

U.S. Jobs

The ADP Research Institute may say today that companies in the U.S. increased employment by 200,000 workers last month, according to the median estimate of economists in a Bloomberg survey. The Labor Department releases payrolls data on Jan. 10.

Unless the ADP report falls far short of estimates, it will not dislodge expectations of a strong rise in payrolls, National Australia Bank Ltd. analysts led by head of market research Peter Jolly wrote in a research note today. “Assuming not, this in turn will boost confidence in a further QE taper from the Fed,” they wrote.

The Australian dollar tumbled 14 percent against the greenback in 2013, the most among its Group of 10 peers after the yen. It will end 2014 at 87 U.S. cents, according to the median forecast of analysts polled by Bloomberg.

Aussie Shorts

Traders increased bearish Aussie bets to the most in almost four months last week. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Aussie compared with those on a gain -- so-called net shorts -- rose to 57,414 in the week to Dec. 31, the most since the period ended Sept. 10, figures from the Washington-based Commodity Futures Trading Commission show.

“Elevated short positioning should limit AUD downside from the current levels,” Manuel Oliveri, a foreign-exchange strategist at Credit Agricole SA, wrote in an e-mailed note to clients dated today. “The risk for position squaring-related currency upside may be rising again.”

The Australian Industry Group’s construction index fell to 50.8 in December from 55.2 the previous month, according to a report today. Readings above 50 signal expansion. Job vacancies fell 1.7 percent in November, the Australian Bureau of Statistics said today.

Traders see 21 percent odds the Reserve Bank of Australia will cut its benchmark interest rate by its June meeting, overnight-index swaps data show. They are certain of a rise in New Zealand’s borrowing costs over the same period of time.

“Economic prospects are diverging,” said St. George Bank’s Chan. “That divergence is leading the Aussie to fall against the New Zealand dollar.”

To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

To contact the editor responsible for this story: Pavel Alpeyev at palpeyev@bloomberg.net

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