Aussie Dollar Weakens After Unexpected Trade Deficit

Australia’s dollar dropped against most major counterparts after the nation unexpectedly posted a trade deficit, adding pressure on the Reserve Bank to cut interest rates as the economy slows.

The so-called Aussie touched an 11-week low after the RBA signaled a willingness yesterday to ease policy, while minutes showed the Federal Reserve is holding off from additional stimulus in the U.S. New Zealand’s dollar slid for a second day before U.S. data that may point to a job market recovery.

“There are some concerns that exports are really slowing, and that’s pretty negative for the Aussie,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “It seems that the RBA is on the easing bias for now.”

The Australian dollar slid to $1.0264, a level unseen since Jan. 16, before trading at $1.0289 at 4:27 p.m. in Sydney, 0.4 percent lower than yesterday’s close. It touched NZ$1.2576, the weakest since Oct. 6. New Zealand’s dollar, nicknamed the kiwi, fell 0.2 percent to 81.74 U.S. cents.

Australia’s three-year bond yields lost as much as four basis points to 3.41 percent, the lowest since Feb. 7.

Imports outpaced exports by A$480 million ($494 million) in February from a revised A$971 million deficit the prior month, the Bureau of Statistics said today in Sydney. The median estimate in a Bloomberg News survey of 24 economists was for a surplus of A$1.1 billion.

The RBA said yesterday that its 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.” The central bank maintained the overnight cash-rate target at 4.25 percent.

U.S. Outlook

Stimulus could be needed if the U.S. economy “lost momentum,” minutes of the Fed’s March 13 meeting released yesterday showed. At that gathering, the central bank reiterated its pledge to keep interest rates “exceptionally low” at least through late 2014.

The Fed bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 to June 2011 in a bid to boost the economy.

“Our economists note that the minutes have laid a marker for eventual altering of the ‘late 2014’ guidance,” Geoffrey Yu, a UBS AG strategist in London, wrote in a report today.

Data due today from ADP Employer Services may show U.S. companies added 206,000 workers to payrolls last month following a gain of 216,000 in February, according to the median estimate of economists in a Bloomberg survey. A Labor Department report on April 6 is projected to show employment rose by more than 200,000 workers for a fourth month in March.

Yield Gaps

In the U.S. “it seems that policy easing is not being considered,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest bank. “The U.S. dollar is likely to keep rising, and the Aussie and the kiwi are likely to keep falling.”

The extra yield investors demand to hold Australia’s two-year government notes instead of similar-maturity U.S. Treasuries narrowed to 3.07 percentage points yesterday, the least since Feb. 3. The spread between New Zealand’s two-year interest-rate swap and its U.S. equivalent fell to 2.39 percentage points today, a level unseen since Feb. 17.

New Zealand’s budget deficit was wider than estimated in the eight months through Feb. 29 as tax revenue slowed, the Treasury Department said today. A report by ANZ National Bank Ltd. showed the country’s commodity export prices declined in March to the lowest level since 2010.

The kiwi also fell after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole-milk powder prices slid for the eighth-straight auction to a 20-month low.

Credit Ratings

The kiwi has advanced 5.9 percent in the past six months, while the Aussie has gained 5.4 percent, making them the best performers among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes.

The benchmark yield on Australia’s 10-year debt has fallen to 4.08 percent from 5.54 percent a year earlier. That’s still the most among the eight countries that have the highest credit grades from all major rating companies with stable outlooks, according to data compiled by Bloomberg.

Fourth-quarter data released by the International Monetary Fund on March 30 showed that 5.1 percent of global foreign-exchange reserves was “other currencies,” which may include the Australian dollar. That’s the most on record going back to 1995 and the first time the figure exceeded 5 percent.

“We like the Australian dollar,” Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, said in an interview with Bloomberg Television. “We’re going to see very heavy buying on any further dip from the corporate sector, as well as potentially from sovereigns.”

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