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Aussie, Kiwi Stay Lower as China Concern Saps Risk Demand

The Australian and New Zealand dollars remained lower as demand weakened for commodity-related currencies on deepening concern that China’s growth is slowing.

The so-called Aussie held its biggest slide in a week after a private report showed business confidence declined in August, fanning speculation the Reserve Bank of Australia will resume interest-rate cuts to counter the impact of a global slowdown. Demand for the South Pacific nations’ currencies was supported by bets the Federal Reserve will announce a new round of asset purchases known as quantitative easing this week.

“The Aussie has been underperforming, which probably comes down to indications of softening around the edges of the Australian economy, as well as concern that the regional economy, notably China, is going to slow down,” said Todd Elmer, a currency strategist at Citigroup Inc. in Singapore. “The market has priced in a persistent risk of rate cuts” by the RBA.

The Aussie was little changed at $1.0330 as of 4:22 p.m. in Sydney from yesterday, when it declined 0.5 percent, the biggest drop since Sept. 3. It fetched 80.80 yen from 80.91.

New Zealand’s dollar, known as the kiwi, bought 80.95 U.S. cents from 80.88, after falling 0.5 percent yesterday. The currency was at 63.32 yen from 63.32.

Australian government bonds gained for a second day, with the yield on 10-year notes declining two basis points, or 0.02 percentage point, to 3.11 percent.

China Slowdown

Data this month showed further evidence that Chinese growth is losing momentum, clouding the outlook for Australian and New Zealand commodity exports.

China’s imports unexpectedly fell in August, sliding 2.6 percent, the customs bureau said in Beijing yesterday. Industrial production increased 8.9 percent, the National Bureau of Statistics said Sept. 9, the slowest pace in three years. China is Australia’s biggest trading partner and New Zealand’s second-biggest export market.

RBA Governor Glenn Stevens and his board left the overnight cash-rate target at 3.5 percent for the past three meetings, after lowering it by a total of 75 basis points in May and June. Traders are pricing in about a 60 percent chance policy makers will cut borrowing costs next month, according to swaps data compiled by Bloomberg.

“While the economy may be bottoming out, it has yet to show signs of an imminent recovery,” Mary Nicola, a New York-based currency strategist at BNP Paribas SA, wrote in a note to clients today, referring to China. “The AUD remains vulnerable to further downside as weak China data augment market expectations for a rate cut from the RBA.”

Business Confidence

National Australia Bank Ltd.’s confidence index, based on a survey of more than 500 companies, fell to minus 2 last month from 3 in July, according to a report released today. The business conditions gauge, a measure of hiring, sales and profits, improved to 1 from negative 3.

Demand for Australia’s dollar was supported before the U.S. Federal Open Market Committee begins a two-day meeting tomorrow, when Germany’s Federal Constitutional Court is also due to rule on the country’s participation in the European Stability Mechanism.

Fed Chairman Ben S. Bernanke said on Aug. 31 at a conference in Jackson Hole, Wyoming, that the costs of “nontraditional policies” appeared manageable when considered carefully. He said he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.”

“I expect that the Aussie will take direction from the bigger macro trend, such as Fed on Thursday and the German Constitutional Court decision,” said Citigroup’s Elmer. “It probably is better positioned to gain on any positive development.”

-- Editors: Garfield Reynolds, Benjamin Purvis

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