Aussie Declines as Central Bank Says Recovery Uncertain

Australia’s dollar declined the most in two weeks against its U.S. counterpart as policy makers signaled that interest rates will probably stay low for longer amid a less certain recovery.

The Bloomberg Dollar Spot Index advanced after falling yesterday to match the lowest close this month before Federal Reserve officials begin a two-day gathering. The euro pared an advance against the yen as a report showed a measure of German investor confidence fell this month. The pound halted a four-day gain versus the dollar as U.K. inflation slowed to the least in 4 1/2 years.

“It was a very convincing neutral stance, neither a case for rate cuts and neither a case for rate hikes at least not until the end of the year,” said Dorothea Huttanus, a currency strategist at DZ Bank AG in Frankfurt. “The economy is not really in a position to deal with an ongoing strong Aussie.”

The Aussie dropped 0.5 percent to 93.59 U.S. cents as of 6:36 a.m. New York time, the steepest decline since June 2. The yen weakened 0.1 percent to 101.97 per dollar and was 0.1 percent lower at 138.34 per euro, after depreciating as much as 0.2 percent to 138.54. The dollar added less than 0.1 percent to $1.3567 versus the euro after sliding 0.3 percent to $1.3574 yesterday.

In minutes of its June 3 meeting, Australia’s central bank repeated that the current accommodative stance of policy was likely to be appropriate for some time. The RBA’s cash rate stands at 2.5 percent.

RBA Minutes

“The expectation of substantial falls in mining investment, below-average growth of public demand and non-mining investment remaining subdued for a time implied that the pace of growth was likely to be a little below trend over the rest of this year and into next,” the minutes said.

Non-financial foreign direct investment in China fell 6.7 percent in May from a year earlier, the Ministry of Commerce reported, missing analyst forecasts for a 3.2 percent advance. China is Australia’s biggest trading partner.

The euro pared its gain versus its Japanese peer as the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to 29.8 from 33.1 in May. Economists forecast an increase to 35, according to the median estimate in a Bloomberg News survey.

ECB Measures

Germany’s growth has slowed as the 18-nation euro area struggled with subdued growth and low inflation, prompting the European Central Bank to unveil a package of measures including a negative deposit rate and targeted long-term loans to banks.

Demand for emerging market currencies waned after the Chinese data and as investors awaited the Fed.

Russia’s ruble depreciated for a third day versus the dollar, declining 0.4 percent to 34.7915. The Indonesian rupiah weakened 0.6 percent to 11,893 per dollar.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.1 percent to 1,012.55 after falling 0.1 percent yesterday to 1,011.61, matching the lowest close since May 30.

The greenback strengthened versus all Group of 10 currency peers before U.S. central bank officials start their meeting today. Members of the Federal Open Market Committee cut monthly bond purchases to $45 billion when they last gathered on April 29-30.

‘Marginally Higher’

“The dollar is marginally higher against the G10,” said Callum Henderson, the Singapore-based global head of foreign-exchange research at Standard Chartered Plc. “The driver behind that is some degree of short covering ahead of the FOMC meeting, just in case they’re slightly more hawkish than consensus.” A short position is a bet an asset will decline.

The dollar rose 0.3 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen weakened 0.2 percent and the euro fell 0.7 percent. The pound gained 1.4 percent, the best performance within the set of gauges.

The pound was little changed at $1.6983 after climbing to $1.7011 yesterday, the highest since August 2009. Sterling traded at 79.89 pence after reaching 79.59 pence yesterday, the strongest level since October 2012.

Consumer prices in the U.K. rose 1.5 percent in May, the least since October 2009 and down from a rate of 1.8 percent in April, the Office for National Statistics said in London today. That compares with a median forecast of 1.7 percent in a Bloomberg News survey. Inflation has been at or below the BOE’s 2 percent target for six months, the longest stretch since 2009.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Mark McCord

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