Aussie Drops for a Second Day as Asian Stocks Decline

The Australian dollar declined, following yesterday’s biggest one-day drop in almost a month, as Asian stocks extended equity losses worldwide, curbing demand for higher-yielding assets.

The so-called Aussie slid versus its Japanese counterpart following a global commodities rout. New Zealand’s currency, known as the kiwi, dropped for a second day after central bank Governor Graeme Wheeler said yesterday he’s ready to intervene in foreign-exchange markets, prompting a surge in the local dollar’s volatility to a five-month high. Both South Pacific currencies fell as China told local authorities to “decisively” curb real estate speculation.

“There’s a bit of negative risk sentiment out there, so Aussie and kiwi have come under some pressure,” said Peter Dragicevich, a Syndey-based currency economist at Commonwealth Bank of Australia, the nation’s largest lender. “We expect them to bounce back over the next week or so.”

The Australian dollar lost 0.2 percent to $1.0233 as of 4:46 p.m. in Sydney after declining 1 percent to $1.0256 yesterday in the biggest drop since Jan. 24. The Aussie will rebound to $1.08 by Dec. 31, Dragicevich said. It bought 95.62 yen from 95.97 in New York.

Australia’s 10-year yield fell five basis points, or 0.05 percentage point, to 3.54 percent after touching a nine-month high of 3.61 percent yesterday.

The MSCI Asia Pacific Index of shares declined 1.6 percent. The Standard & Poor’s 500 Index tumbled 1.2 percent in New York yesterday, the largest drop since Nov. 14. The S&P GSCI Spot Index of 24 raw materials lost 1.1 percent, the most since Dec. 6, while the Thomson Reuters/Jefferies CRB Index declined 0.6 percent yesterday.

Volatility Spike

Implied one-month volatility in the New Zealand dollar, a measure of expected price swings over the time period, rose 35 basis points to 9.98 percent, set for the highest close since Sept. 5. Increased volatility in an asset heightens the potential for investor losses.

Reserve Bank of New Zealand Governor Wheeler said “the kiwi is not a one-way bet” in a speech to manufacturers and exporters in Auckland yesterday, helping drive a 1.3 percent decline in the kiwi dollar versus its U.S. counterpart, the biggest since Dec. 21. The currency fell 0.2 percent to 83.42 U.S. cents today.

The kiwi fetched NZ$1.2267 per Australian dollar after it touched a one-week low of NZ$1.2349 yesterday, paring its gain this year to 2.2 percent.

Shifting Fortunes

Yesterday’s decline in New Zealand’s currency against the Aussie following Wheeler’s comments “marks a shift in the fortunes of the currency pair,” Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole SA, wrote in a note to clients today.

The 14-day relative strength index for New Zealand’s currency versus its Australian peer was at 59 today from 73 a week earlier, which was above the 70 level that some traders see as a sign an asset has risen too far, too fast and may be due to reverse course.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates that are sensitive to expectations for borrowing costs, added one basis point to 2.98 percent.

The Aussie was little changed in the past week, while its New Zealand peer declined 0.8 percent, according to Bloomberg Correlation-Weighted Indexes, a set of gauges that track 10 developed-nation currencies.

Chinese cities that have had “excessively fast” price gains should “promptly” impose home-purchase restrictions if they’ve not done so already, according to a statement yesterday after a State Council meeting headed by Premier Wen Jiabao. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.

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