Australia’s dollar fell along with Asian stocks amid concern the European Central Bank’s cut in interest rates yesterday won’t be enough to stem the region’s debt crisis, damping demand for riskier assets.
The so-called Aussie dollar trimmed its weekly gains versus the greenback and yen even after China yesterday cut its key interest rate for the second time in a month and the Bank of England expanded asset purchases in efforts to bolster growth. Losses in New Zealand’s kiwi dollar were limited after the government said its deficit was narrower than forecast.
“The ECB didn’t announce extraordinary measures yesterday, such as possible bond purchases,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “The market is jittery about the status quo in terms of the ECB’s handling of sovereign risks. The Aussie and kiwi are trading softer in such a risk-averse environment.”
The Aussie lost 0.2 percent to $1.0263 as of 4:25 p.m. in Sydney, paring its weekly gain to 0.3 percent. The currency fetched 81.96 yen from 82.22, having gained 0.3 percent since June 29. New Zealand’s dollar slipped 0.1 percent to 80.30 U.S. cents after touching 80.76 yesterday, the highest since May 3. It bought 64.11 yen from 64.22.
The MSCI Asia Pacific Index of regional shares slipped 0.5 percent. The 10-year yield on Australia’s government bonds added one basis point, or 0.01 percentage point, to 3.10 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell three basis points to 2.77 percent.
Spanish and Italian bonds slumped yesterday after ECB policy makers refrained from announcing any additional steps to cap borrowing costs in the debt-strapped nations. The central bank lowered the benchmark rate to a record 0.75 percent.
The yield on Spain’s 10-year debt rose as much as 43 basis points yesterday to 6.84 percent, the highest since June 29, and near the 7 percent level that spurred Greece, Ireland and Portugal to seek bailouts. Italy’s 10-year bond yield increased 21 basis points to 5.98 percent.
“The ECB gave no indication that it would pursue unconventional measures in the future which did come as a disappointment to the markets,” currency strategists at BNP Paribas SA wrote in a note to clients yesterday.
The one-year lending rate in China will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective today, the People’s Bank of China said yesterday. The BOE expanded its asset-purchase stimulus program by 50 billion pounds ($78 billion) to 375 billion pounds.
The PBOC “has plenty of ammunition left” in terms of stimulus, Yale University professor Stephen Roach said today in an interview with Bloomberg Television. China is “on a soft-landing and not a hard-landing trajectory,” said Roach, a former non-executive chairman for Morgan Stanley in Asia.
Morgan Stanley lowered its forecasts for the Aussie and kiwi, citing the challenging environment for risk appetite amid poor growth prospects for the global economy.
Australia’s dollar will finish the third quarter at $1 compared with an earlier projection of $1.03, and New Zealand’s currency will decline to 79 U.S. cents over the same period from an earlier forecast for 81 cents, Morgan Stanley said in a note yesterday. Global growth indicators are moving to new cycle lows while the worldwide policy response remains more muted than seen previously, it said.
New Zealand’s budget deficit was NZ$1.13 billion ($907 million) narrower than forecast in the 11 months through May as tax revenue exceeded expectations, according to a Treasury Department report released today.