The Australian dollar weakened and bond yields fell to records after Standard & Poor’s downgrade of Spain highlighted concern Europe’s debt crisis is deepening.
The so-called Aussie was headed for the biggest monthly decline since November against the yen on speculation the Reserve Bank of Australia will lower interest rates next week. New Zealand’s dollar fell against most major peers as Asian stocks slid, reducing demand for riskier assets. The South Pacific nations’ currencies earlier gained briefly against the yen after the Bank of Japan expanded its asset purchase fund.
“There is concern over Europe with Spain’s downgrade and bond yields going back up” in some nations there, said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The Aussie and kiwi are still vulnerable to the downside. The market is pricing in more easing by the RBA.”
Australia’s dollar fell 0.3 percent to $1.0364 as of 4:56 p.m. in Sydney. It climbed as much as 0.4 percent versus the yen before trading at 83.73 yen, 0.5 percent below yesterday’s close in New York. The New Zealand currency dropped 0.4 percent to 81.15 U.S. cents. It slid 0.6 percent to 65.56 yen after earlier rising as high as 66.25 yen.
The yield on Australia’s 10-year debt fell as much as nine basis points, or 0.09 percentage point, to 3.636 percent, the least on record. The five-year yield also reached an all-time low, sliding as much as 12 basis points to 3.071 percent. Two-year bond rates touched 2.978 percent, a level last seen in April 2009.
S&P cut Spain’s long-term credit rating two levels to BBB+ yesterday from A, saying the outlook is negative as the country’s recession undermines efforts to reduce the budget deficit.
RBA Cuts Loom
The MSCI Asia Pacific Index of stocks fell 0.2 percent while S&P 500 Index futures declined 0.5 percent.
Traders are betting the Reserve Bank of Australia will cut its benchmark rate from 4.25 percent at its next meeting on May 1, with a Credit Suisse Group AG gauge indicating that a cut of at least 25 basis points is a certainty.
The central bank this month signaled it may lower rates to bolster the economy, provided inflation remains in check. A report this week showed annual consumer price inflation slowed to 2.2 percent in the first quarter, toward the lower end of the RBA’s 2 percent to 3 percent target range.
There are 5.99 puts to sell the CurrencyShares Australian Dollar Trust for every call to buy the security, according to data compiled by Bloomberg. The ratio reached an all-time high of 6.03 on April 20. The exchange-traded fund, which tracks the U.S. dollar value of the Aussie, has dropped 3.6 percent from a nine-month high on Feb. 7.
“All the economic metrics are pointing to an interest rate cut, which is reducing the attractiveness of the Aussie,” Alex Tedder, who helps manage $13 billion in global stocks at American Century Investments in New York, said in an April 25 phone interview. “They have the ability to cut rates, and they will use it.”
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped 1.5 basis points to 2.75 percent, heading for the lowest close since Feb. 1.
BOJ officials increased the bank’s asset-purchase fund by 10 trillion yen ($123 billion) to 40 trillion yen, according to a statement released in Tokyo today.
-- With reporting by Kristine Aquino in Singapore, Nikolaj Gammeltoft in New York and Cecile Vannucci in Amsterdam. Editors: Garfield Reynolds, Jonathan Annells