Australia’s dollar is poised for its biggest weekly drop this year and bond yields fell to new records as investors increased bets the Reserve Bank will reduce its benchmark rate to an all-time low after officials cut forecasts for growth and inflation.
Declines in the so-called Aussie were tempered on speculation the currency’s slide may have been too rapid after the central bank lowered borrowing costs by an unexpected degree on May 1. Yields on the South Pacific nation’s 10- and 15-year debt declined to records. New Zealand’s dollar weakened versus all of its 16 major counterparts this week as Asian stocks fell in tandem with global equities.
“The Aussie has made its move slightly lower against the U.S. dollar,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “The Reserve Bank is seeing weaker inflation and growth, and has therefore moved interest rates appropriately.”
The Australian dollar was little changed at $1.0265 as of 4:12 p.m. in Sydney, poised for a 2 percent drop this week, the biggest since Dec. 16. It bought 82.32 yen from 82.30, having fallen 2.1 percent since April 27.
The yield on Australia’s 10-year note slid to as low as 3.53 percent. The rate on the 15-year security dropped to 3.86 percent, the lowest recorded for Australia’s longest-maturity issue, according to data compiled by Bloomberg going back to 1991.
The New Zealand dollar was at 80.04 U.S. cents from 79.97 cents yesterday, set for a 2.7 percent five-day decline. The so-called kiwi was at 64.18 yen from 64.13 yesterday, when it traded at 64.08, the weakest since Feb. 8.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell as low as 2.56 percent, the least recorded in Bloomberg data going back to 1993.
The MSCI Asia Pacific excluding Japan Index fell 0.6 percent. Japan’s markets are shut today for a public holiday.
The RBA cut its key rate by 50 basis points, or 0.5 percentage point, to 3.75 percent on May 1. Governor Glenn Stevens cited economic conditions that “have been somewhat weaker than expected” after the RBA decision, which most economists surveyed by Bloomberg News predicted would be a quarter-percentage-point reduction in borrowing costs.
Interest-rate swaps data compiled by Bloomberg show investors are betting that the RBA will lower its benchmark rate to 3 percent by November, matching 2009’s all-time low. There’s more than a 35 percent chance of the rate declining to 2.75 percent or lower, the data indicate.
The RBA sees average growth of 3 percent in 2012, down from a February estimate of 3.5 percent, according to its quarterly monetary policy statement released today. Consumer prices will rise 2.5 percent in the year to December, from a previous prediction of 3 percent. Underlying inflation is predicted to be at 2.25 percent from a previous 2.75 percent, the central bank said. The estimates are based on the overnight cash rate target remaining at 3.75 percent, it said.
“The assumed high level of the exchange rate and a weak short-term outlook for building construction are expected to result in subdued growth outside of the mining sector in the near term,” the RBA said.
The Aussie has lost 1.6 percent this year, the worst performer after the Japanese yen and U.S. dollar among 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes.
“We’ve seen some short-covering in the Aussie dollar,” said Sacha Tihanyi, a senior currency strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. “The statement wasn’t overly negative, relative to an RBA that cut by 50 basis points.” Short-covering is the purchase of a security in order to close out a short position, a bet that an asset will fall.
The Australian dollar’s relative strength index versus the greenback was at 41 from 56 on April 27, nearing the 30 level that some traders see as a sign the currency may be about to reverse direction.
Both the Australian and New Zealand currencies fell yesterday after data showed growth slowed in U.S. services industries, curbing demand for risk assets.
The Institute for Supply Management said yesterday its non-manufacturing index, a gauge of U.S. service industries, fell to a four-month low of 53.5 in April from 56 in March. The median forecast of economists surveyed by Bloomberg was 55.3. A reading above 50 in the Tempe, Arizona-based group’s gauge signals expansion.