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Australia Dollar Declines After Retail Sales Data

Dec. 3 (Bloomberg) -- Australia’s dollar fell against all of its major counterparts after data showed the nation’s retail sales unexpectedly stagnated, fanning speculation the Reserve Bank will cut the benchmark interest rate tomorrow.

The so-called Aussie slid for a third day versus the U.S. currency after U.S. Treasury Secretary Timothy F. Geithner and House Speaker John Boehner hardened their positions over the so-called fiscal cliff that threatens to send the world’s biggest economy into recession. New Zealand’s dollar weakened versus most peers after data showed the nation’s terms of trade worsened. Both currencies were supported after official and private reports showed China’s manufacturing expanded.

Australia’s dollar “definitely took the news rather badly,” Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotiabank, said about the retail sales data. The report “makes the market believe that the RBA may be more concerned about the state of the domestic economy.”

The Australian dollar dropped 0.2 percent to $1.0403 as of 5:17 p.m. in Sydney after losing 0.5 percent over the previous two sessions. New Zealand’s currency touched 81.71 U.S. cents, the lowest since Nov. 23, before trading at 81.96, little changed from the Nov. 30 close.

Australia’s retail sales were unchanged in October from a month earlier, the Bureau of Statistics said today. Economists in a Bloomberg News survey had predicted a 0.4 percent increase.

The Reserve Bank of Australia will probably reduce the overnight cash-rate target to 3 percent tomorrow from 3.25 percent, the median estimate of economists shows. Traders see an almost 95 percent chance that the RBA will lower the rate by a quarter of a percentage point, according to data compiled by Bloomberg on overnight-index swaps.

Bond Yields

Yields on Australia’s three-year bonds fell as much as six basis points to 2.56 percent, the lowest since Nov. 19. Ten-year rates slid to as low as 3.12 percent, a level unseen since Nov. 19.

Republicans in Congress will be responsible for hurting the U.S. economy if they refuse to raise tax rates on the highest-income earners as part of a deal, Geithner said in a taped interview that aired yesterday on CNN’s “State of the Union.” Republican Boehner said on the “Fox News Sunday” program that the White House has responded to their offer “with virtually nothing.”

Fiscal Cliff

The fiscal cliff refers to the $607 billion combination of automatic spending cuts and tax increases scheduled to take effect in January.

New Zealand’s terms of trade index fell 3.2 percent in the three months ended Sept. 30 from the second quarter, the biggest drop since June 2009, the statistics bureau said today. The gauge measures the price of exports relative to imports.

Prime Minister John Key said today that New Zealand’s third-quarter gross domestic product will probably be a weak number.

The Aussie climbed 0.5 percent against the greenback in November as concern eased that an economic slowdown in China will curb demand for the South Pacific nation’s commodity exports. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.

HSBC Holdings Plc and Markit Economics said today that their purchasing managers’ index for China’s manufacturing was at 50.5 last month, up from 49.5 in October. The report followed the official manufacturing index released on Dec. 1 that advanced to a seven-month high of 50.6. Readings above 50 signal expansion.

“The moderation in growth found a base in the third quarter, and we think the Chinese economy has been moderately expanding since then,” said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd. For the Aussie, “it’s a positive, but only just.”

Futures traders raised their bets that the Australian dollar will rise against the greenback, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop increased by 12,095 to 76,806 on Nov. 27, the biggest advance since Sept. 25.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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