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Australia Yields at 6-Month Low, Dollar Falls on RBA Bets, China

Australia’s government bonds rose, sending 10-year yields to the lowest in more than six months as signs of a slowdown in the global economy raised prospects for the Reserve Bank to cut interest rates.

The so-called Aussie fell against most of its 16 major peers after data showed building approvals in the nation unexpectedly decreased and Chinese manufacturing slowed more than estimated. The currency extended declines on a report that China may lower its growth target. Traders expect the Reserve Bank of Australia to cut borrowing costs by 58 basis points over 12 months, compared with 38 basis points indicated on April 22, a Credit Suisse Group AG index based on swaps showed.

“Today’s housing data is pretty bad,” said Matthew Johnson, a Sydney-based interest-rate strategist at UBS AG. “In response to some weak data, people are looking for a couple more rate cuts, maybe as soon as next week” by the RBA, pushing down Australian bond yields, he said.

The yield on Australia’s 10-year bonds fell seven basis points, or 0.07 percentage point, to 3.03 percent, after touching 3.01 percent, a level unseen since Oct. 16. The three-year rate touched 2.51 percent, the lowest since Nov. 16.

The Australian dollar declined 0.4 percent to $1.0236 as of 5:01 p.m. in Sydney from yesterday. It lost 0.5 percent to 99.57 yen. The Aussie touched NZ$1.2052, the lowest since October 2009. New Zealand’s dollar, nicknamed the kiwi, slid 0.2 percent to 84.85 U.S. cents. The currency was down 0.3 percent at 82.52 yen from yesterday, having fallen 1.2 percent in the previous two sessions.

Global Growth

In Australia, the number of permits granted to build or renovate houses and apartments declined 5.5 percent in March from a month earlier, when they rose a revised 3 percent, the statistics bureau said in Sydney today. The median forecast was for a 1 percent gain in a Bloomberg News survey of economists.

China’s Purchasing Managers’ Index of manufacturing fell to 50.4 in April from 51.6 the previous month, HSBC Holdings Plc and Markit Economics said today. The median economist estimate was for a drop to 50.5.

China may lower its economic growth target for 2014 to 7 percent from 7.5 percent, Market News International reported, citing an unidentified person “familiar with discussions on the State Council.” China is the biggest trading partner for both Australia and New Zealand.

Economists in a separate Bloomberg poll estimate the final reading of a German PMI remained at 47.9 in April, below the 50 level and indicating contraction. Markit Economics will release its figures today.

Risk Aversion

The bond market is “reacting to the weak headline global-growth numbers and the outlook for RBA policy in the near term,” said Andrew Salter, a Sydney-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. “Germany has weakened more than most in the market anticipated. To the extent that we do get a confirmation of that weakness, I think we should see risk taken off the table.”

The MSCI Asia Pacific Index of stocks fell 0.4 percent following a 0.7 percent decline in MSCI’s World Index yesterday. The Thomson Reuters/Jefferies CRB index of raw materials dropped 1.7 percent yesterday.

New Zealand’s currency declined for a third day against the yen after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy producer, said whole milk powder prices fell for the first time this year.

Milk powder for July delivery declined 4.8 percent, according to a trade-weighted index on Fonterra’s GlobalDairyTrade website. It was the first drop since Dec. 18. The near-term contract for New Zealand product fell to $6,001 a metric ton from a record $6,283 on April 16.

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