March 20 (Bloomberg) -- Australia’s dollar remained lower after its biggest drop in more than a week versus the greenback after Cyprus’s parliament rejected a bank-deposit levy needed to secure a bailout, sapping demand for high-yielding assets.
Government bonds in Australia and New Zealand rallied as the impasse threatened to reignite the crisis in Europe, boosting the allure of haven securities. The New Zealand dollar, nicknamed the kiwi, fell against most major peers as the government said the country’s most widespread drought in at least 30 years reduces pressure to raise interest rates.
“The U.S. dollar is bid at the moment because of the uncertainty in Europe, and that’s putting other currencies on the back foot, including the Aussie and kiwi,” said Richard Grace, the Sydney-based chief foreign-exchange strategist and head of international economics at Commonwealth Bank of Australia. “The Cypriots have to go back to the drawing board. The danger is they’re forced to implement these bank levies, and the issue of a tax on deposits spreads to other areas of Europe.”
The Australian dollar was little changed at $1.0376 as of 5 p.m. in Sydney from yesterday, when it dropped 0.3 percent, the biggest decline since March 8. It fell 0.1 percent to 98.63 yen.
The New Zealand dollar slid 0.4 percent to 82.16 U.S. cents from yesterday, when it lost 0.3 percent. The kiwi dropped 0.5 percent to 78.08 yen.
Cypriot legislators in the capital Nicosia voted 36 against with none in favor of the bank-deposit levy in a show of hands yesterday. There were 19 abstentions.
Hammered out by euro-area finance chiefs over the weekend, the unprecedented proposal had sought to raise 5.8 billion euros ($7.5 billion) by drawing funds from Cyprus bank accounts in return for 10 billion euros in international aid.
The European Central Bank, whose Governing Council meets today in Frankfurt, will have to decide whether to give Cyprus more time or consider cutting off liquidity to the country’s banks.
Australia’s 10-year government bond yield dropped 4 basis points, or 0.04 percentage point, to 3.51 percent, while the rate for similar-dated New Zealand debt declined 4 basis points to 3.66 percent.
New Zealand Finance Minister Bill English said in a Bloomberg Television interview in Hong Kong that the drought that has engulfed the entire North Island means a “bit less pressure” for tighter policy.
English said the dry weather will cost the economy about NZ$2 billion ($1.7 billion) this year, and that recent rain means a worst-case scenario has been averted.
Interest-rate swaps data compiled by Bloomberg show traders see a 13 percent chance the Reserve Bank of New Zealand will raise its benchmark rate from a record low of 2.5 percent by the Oct. 31 meeting. That compares to 53 percent odds a month ago.
New Zealand’s current-account deficit widened more than economists predicted in the fourth quarter. It rose to 5 percent of gross domestic product from 4.7 percent in the previous period, the statistics bureau said today in Wellington. The median forecast of economists was 4.9 percent in a survey by Bloomberg News.
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