Aussie Set for Drop as Stock Losses Sap Demand

Australia’s dollar fell, heading for its first weekly drop in three, as losses in Asian stocks sapped demand for riskier assets.

The so-called Aussie weakened versus the yen as investors weighed whether Japan’s currency slid too much amid speculation the Bank of Japan will expand monetary easing. Demand for the New Zealand dollar, known as the kiwi, was limited after the central bank governor said today he wants a weaker currency.

“Losses in stocks are leading to a lower Australian dollar,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co. “The market priced in BOJ’s additional easing too aggressively, so now we’re seeing some buying back in the yen against the Aussie.”

The Australian dollar dropped 0.3 percent to $1.0316 as of 4:25 p.m. in Sydney, set for a 0.1 percent weekly decline. It lost 0.5 percent to 82.63 yen. The New Zealand dollar was little changed at 81.78 U.S. cents, gaining 0.3 percent from Oct. 19. The currency weakened 0.3 percent to 65.50 yen.

The MSCI Asia Pacific Index of shares fell 1 percent today. Australian bonds gained, pushing the yield on 10-year debt down by two basis points, or 0.02 percentage point, to 3.24 percent.

The BOJ will release a forecast for the nation’s inflation and growth on Oct. 30, when holding its second policy meeting this month. All but one of 27 economists surveyed by Bloomberg News expect the central bank to add to stimulus for the second time in two months next week.

Rate Projections

Losses in the Aussie were limited as traders pared bets the nation’s Reserve Bank will reduce interest rates.

Overnight index swaps data compiled by Bloomberg indicate about a 70 percent chance of a 0.25 percentage point reduction in the Reserve Bank of Australia’s key rate at its Nov. 6 meeting, down from more than 90 percent a week ago. The odds have fallen since data this week showed a faster-than-expected gain in the nation’s consumer prices.

“We’re in the camp that’s sticking with RBA rate cut in November, but the market’s very divided on that now after the CPI,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. “Until the market really makes up its mind on the RBA, then the Aussie’s probably broadly range-bound.”

While Reserve Bank of New Zealand’s Graeme Wheeler said the central bank is prepared to sell its currency, he reiterated there are conditions around intervention. Those include a currency that’s historically and unjustifiably high, and the central bank needs to be sure that the timing of its sales will have an effect.

Wheeler is under pressure to cut interest rates as inflation slows and the currency rises, curbing exports and prompting some manufacturers to close plants. A report today showed the country’s annual trade deficit swelled to the widest since 2009 as exports fell to a 20-month low.

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