The Australian and New Zealand dollars erased earlier gains amid concern Greek elections this weekend will further roil Europe’s debt crisis, reducing demand for riskier assets.
The Aussie weakened against most of its 16 major peers after Reserve Bank of Australia Governor Glenn Stevens said the nation’s real exchange rate is “pretty high” and data showed consumer confidence was near the lowest level this year. The so-called kiwi was 0.3 percent from a one-month high against its Australian counterpart before a Reserve Bank of New Zealand meeting tomorrow where policy makers are expected to leave rates unchanged.
“Markets are going to be nervous up until the Greek election,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “Aussie is keeping just below parity because of these concerns.”
The Australian dollar lost 0.2 percent to 99.41 U.S. cents as of 4:01 p.m. in Sydney from yesterday, after earlier gaining 0.1 percent. It was at 79.29 yen from 79.20 yesterday, when it advanced 1.1 percent. Australia’s currency bought NZ$1.2807 from NZ$1.2812 yesterday, when it touched NZ$1.2773, the least since May 11.
New Zealand’s currency slid 0.1 percent to 77.62 U.S. cents after earlier touching 77.89, the highest level since May 15. The kiwi fetched 61.83 yen from 61.81 yesterday.
Greece’s general election looms on June 17 as concerns of debt contagion drive bonds lower in Spain and Italy, which is scheduled to sell securities today and tomorrow. The election may determine whether Greece abides by spending reductions imposed upon it to receive two international bailouts and stay in the euro. Spain on June 9 became the fourth of the currency union’s 17 states to ask for a rescue.
Standard & Poor’s 500 Index futures fell 0.2 percent, signaling the underling gauge may retreat after climbing 1.2 percent yesterday.
“Europe will remain a key market driver for the foreseeable future,” a Barclays Capital research team led by Larry Kantor wrote in a research note today. Barclays prefers to “fade” rallies in risky currencies.
The RBA’s Stevens said in Brisbane today that the nation’s real exchange rate is “pretty high here” and is a “test of adaptability” for the nation’s companies. A consumer sentiment index for June rose 0.3 percent to 95.6, a Westpac Banking Corp. and Melbourne Institute survey taken June 4-10 of 1,200 consumers showed today. The gauge fell to 94.54 in April, the lowest since August 2011.
Moody’s Investors Service today said Australia’s top Aaa rating outlook remains stable, and the country’s economic strength is “very high.”
Australia’s government bonds declined, pushing the yield on the 10-year security up by five basis points, or 0.05 percentage point, to 3.03 percent. Yields on the three-year government note rose seven basis points to 2.35 percent.
All 16 economists surveyed by Bloomberg News expect New Zealand’s central bank to keep its key interest rate unchanged at 2.5 percent when policy makers meet tomorrow.
“Should the exchange rate remain strong without anything else changing, the bank would need to reassess the outlook for monetary policy settings,” RBNZ Governor Alan Bollard said in a statement in Wellington on April 26 after holding the official rate.
A Credit Suisse Group AG index based on swaps indicates the RBNZ will lower rates by 16 basis points over the next 12 months, compared to 44 basis points indicated on June 4.
“In previous meetings, RBNZ expressed a lot of concern on the strength of their currency,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Sydney. “I think that concern will show up less in the statement this time. On balance, we could see the statement being supportive of the kiwi.”