Aussie Falls Before Spanish Sale, RBA Minutes; Kiwi Drops

The Australian and New Zealand dollars fell for a third day as concern that Europe’s debt crisis is worsening sapped investor demand for riskier assets.

The so-called Aussie declined against 15 of its 16 major peers after minutes of the Reserve Bank of Australia’s last meeting signaled that the central bank is ready to cut interest rates if inflation eases. The New Zealand currency, known as the kiwi, dropped to the weakest in almost six weeks against the yen after global shares fell yesterday when Spain’s borrowing costs climbed to the highest this year, dimming the outlook for the European nation’s debt sales this week.

“The concerns will build over the next couple of months in Spain,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “There’s a lot of problems to be sorted out there. I would be looking for a test of $1.02 in the next couple of weeks” for the Aussie.

Australia’s dollar fell 0.4 percent to $1.0317 as of 3:33 p.m. in Sydney, dropping for a third day. It slid 0.4 percent to 82.96 yen after weakening 0.8 percent yesterday. New Zealand’s currency declined 0.6 percent to 81.58 U.S. cents. The kiwi touched 65.57 yen, the weakest since March 7, before trading 0.5 percent lower than yesterday’s close at 65.60.

Australian bonds pared earlier gains, with the yield on 10-year debt at 3.8 percent, little changed from yesterday after earlier rising by as much as three basis points. The rate on three-year debt was at 3.2 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was at 2.9 percent.

Spanish Auction

Spanish 10-year bond yields jumped as much as 18 basis points, or 0.18 percentage point, to 6.16 percent yesterday, the highest since Dec. 1. Five-year credit-default swaps linked to Spanish bonds reached an all-time high, CMA data show. Spain is scheduled to sell 364-day and 546-day bills today and debt maturing 2014 and 2022 on April 19.

“Members had lowered their assessment of the pace of growth somewhat,” RBA minutes released today. “If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for further easing of monetary policy.”

The central bank on April 3 held its benchmark interest rate unchanged at 4.25 percent.

RBA Minutes

“The RBA definitely remains on an easing bias and that was enough to take the shine off of the Aussie dollar,” said Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp., Australia’s second-biggest lender. “Given that the market was already largely priced for an easing, I still expect demand to come back around the $1.0310-$1.0320 region.”

A Credit Suisse Group AG index based on swaps shows traders are betting the central bank will lower rates by 96 basis points, or 0.96 percentage point, over the next 12 months. That compares to 38 basis points of cuts indicated March 20.

The implied volatility of three-month options for Group of Seven currencies rose as high as 10 percent yesterday, according to the JPMorgan G7 Volatility Index. An increase makes investments in currencies with higher benchmark rates less attractive because it shows the risk is greater that market moves will erase profits on such trades.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE