Australia’s dollar slid toward a six-month low against its New Zealand counterpart after the larger nation’s Reserve Bank signaled a willingness to ease policy further.
The so-called Aussie weakened against all of its 16 major peers after the central bank left its benchmark rate unchanged at 4.25 percent. New Zealand’s dollar held gains against the U.S. currency after a report showed China’s non-manufacturing industries expanded last month, boosting the allure of assets linked to global growth.
“Overall, the tone was quite dovish,” Lee Sue Ann, a Treasury economist at United Overseas Bank Ltd. in Singapore, said of the Reserve Bank of Australia’s statement. “Interest-rate expectations are going to fall, and this will continue to weigh on the Aussie dollar.”
The Australian dollar declined 0.2 percent to NZ$1.2626 as of 4 p.m. in Sydney from the close in New York yesterday. It reached NZ$1.2595 on March 30, the lowest since Oct. 6. The currency lost 0.2 percent to $1.0402. New Zealand’s dollar, nicknamed the kiwi, was little changed at 82.38 U.S. cents after advancing 0.6 percent yesterday.
Yields on Australia’s three-year government bonds dropped as much as ten basis points to 3.42 percent, a level unseen since Feb. 7.
The RBA board “thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy,” Governor Glenn Stevens said today in a statement. The central bank maintained the overnight cash-rate target, as forecast by all 24 economists surveyed by Bloomberg News.
Australia’s statistics bureau is scheduled to release the first-quarter inflation rate on April 24. The nation’s consumer prices rose 1.8 percent last month from a year earlier, the slowest pace since October 2009, an index compiled by TD Securities Inc. and the Melbourne Institute showed yesterday.
The central bank’s statement came as Prime Minister Julia Gillard said today the government will deliver a “tough budget” on May 8 when the Treasury presents a spending plan for the coming fiscal year.
“If the signal from the budget is deep fiscal cuts, I guess there is no option for the RBA but to ease monetary policy to accommodate tighter fiscal conditions,” Christian Carrillo, head of Asia-Pacific interest-rate strategy in Tokyo at Societe Generale SA, said before the RBA announcement.
The extra yield investors demand to hold Australia’s 10-year government debt instead of three-year notes increased to 61 basis points today, matching the biggest gap since January and steepening the so-called yield curve.
“We prefer 3-10 year curve steepeners,” Damien McColough and Timothy Jung, rates strategists at Westpac Banking Corp., wrote in a research note today. The global growth outlook skews “the risks toward an extension of the easing cycle.”
New Zealand’s two-year interest-rate swap, which exchanges a fixed rate for a floating one, fell to 3.015 percent, the lowest level since March 13.
The Australian Bureau of Statistics said today that retail sales rose 0.2 percent in February from a month earlier when they increased 0.3 percent. The most-recent reading matched the median estimate of economists surveyed by Bloomberg.
The Australian and New Zealand dollars were still higher against the U.S. currency than the close at the end of last year amid speculation China’s demand for commodities will continue to buoy the South Pacific nations’ economies.
A purchasing managers’ index for China’s non-manufacturing industries climbed to 58 in March on a seasonally adjusted basis from 57.3 the prior month, the country’s statistics bureau and logistics federation said today.
The organizations said on April 1 that a separate gauge for the country’s manufacturing sectors rose to 53.1 last month, a level unseen in a year and above the February figure of 51. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.
“The fact that we are seeing definitely upbeat figures from China” is having a positive effect on the Aussie and kiwi, said Justin Harper, a market strategist in Singapore at IG Markets. “It’s definitely a shot in the arm for both currencies.”
The Australian dollar has risen 1.9 percent this year against the greenback, while the kiwi has advanced 6.1 percent.