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Aussie Falls as China Raises Rates, Kiwi Declines on Housing

Oct. 19 (Bloomberg) -- The Australian dollar fell against most of its major counterparts after China increased interest rates, discouraging demand for assets linked to growth.

New Zealand’s dollar fell for a fourth day against the U.S. currency after a report showed the nation’s house prices fell in the three months ended June 30. The so-called Aussie fell as China raised its benchmark lending and deposit rates for the first time since 2007 after inflation accelerated to the fastest pace in 22 months.

“China tightened monetary policy in an attempt to slow growth, Aussie is heavily tied to China,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal. “The long Aussie trade has been a China growth trade as well.” A long position is a bet that a currency will rise.

Australia’s currency fell 0.9 percent to 98.06 U.S. cents at 8:25 a.m. in New York from 98.89 cents yesterday. The currency climbed as high as $1.0004 on Oct. 15. The Aussie dropped to 80 yen from 80.37.

New Zealand’s dollar bought 75.04 cents from 75.56 cents, and traded at 61.20 yen from 61.39 yen.

The Australian currency strengthened earlier following the release of minutes from the Reserve Bank of Australia meeting where policy makers said Oct. 5 that benchmark rates would have to rise “at some point.”

‘At The Margin’

The decision to keep borrowing costs unchanged this month hinged on expectations the economy would grow at trend in the near-term, a softening in credit growth and a strengthening Australian dollar which would “effectively be tightening financial conditions at the margin,” RBA policy makers said in the minutes released today. The decision was appropriate “pending evaluation of further information at the next meeting,” they said.

“The minutes reinforce the argument that there could be another hike coming in November or December given that the RBA seems very comfortable with where the currency is,” said Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney.

Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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