Kiwi Leads Decline in Majors as Fed Policy Clouds Global Outlook

New Zealand’s dollar led declines in Group-of-10 currencies as investors weigh whether the world’s economy is strong enough to withstand a possible tightening in U.S. monetary policy.

The kiwi extended its slide to a second day against the U.S. dollar after Federal Reserve policy makers signaled they’ll probably raise interest rates by the middle of next year. Australia’s dollar declined as Asian stocks fell and after the China Securities Journal said the default risk of corporate bonds is rising in the world’s second-largest economy.

“We see a bit of weakening in commodity currencies -- the Aussie and kiwi in particular -- because of the broader stronger U.S. dollar,” said Lee Sue Ann, an economist at United Overseas Bank Ltd. in Singapore. When a central bank tightens policy, “economic growth tends to be good, but in this case the global environment seems to be not fantastically doing well.”

New Zealand’s dollar fell 0.3 percent to 85.35 U.S. cents at of 6:40 p.m. in Sydney after sliding 0.7 percent yesterday, the most since Feb. 18. Australia’s dollar slid 0.2 percent to 90.27 U.S. cents, after it slumped 0.9 percent yesterday.

The Federal Open Market Committee discarded a jobless-rate threshold for considering when to increase borrowing costs and said it will look at a wider range of data. Policy makers also cut monthly bond-buying by $10 billion to $55 billion and said in a statement it will slow purchases in “further measured steps.” Economists in a Bloomberg News survey forecast policy makers will announce an end to the program in October.

Fed Chair Janet Yellen sees a “considerable time” between the end of the stimulus and the first rate increase, meaning “around six months or that type of thing,” she said at a press conference after presiding her first policy meeting.

Bond Yields

Ten-year Treasury note yields climbed 10 basis points yesterday, the most in four months. Australia’s bonds fell, with 10-year yields rising six basis points to 4.13 percent.

New Zealand’s dollar was also hit by official data today showing that expansion in gross domestic product decelerated to 0.9 percent in the fourth quarter from a revised 1.2 percent in the July-September period.

The default risk of China’s corporate bonds increases as economic expansion and property investment growth slow, the China Securities Journal said in a front-page commentary. Companies relevant to the property sector will face a “more severe” situation of overproduction and more defaults may have an impact on banks, the commentary said.

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

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda, Pavel Alpeyev

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