The Australian dollar was 0.4 percent from falling below parity with its U.S. counterpart for the first time in 10 months after the central bank lowered its inflation forecast following an interest-rate cut this week.
The so-called Aussie headed for its biggest weekly drop in a year versus the greenback as the Reserve Bank of Australia lowered its benchmark to a record 2.75 percent on May 7 and cited unusual strength in the currency. New Zealand’s dollar fell against the U.S. currency as the greenback rallied versus most major peers and climbed past 101 yen.
“The RBA will continue cutting the cash rate into early next year down to 2 percent, diminishing the interest-rate support for the currency,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. “If it stays below $1.01, that augurs very poorly for the Aussie and it can fall as far as 99 U.S. cents.”
The Australian dollar declined 0.3 percent to $1.0038 at 5:25 p.m., the least since June 29. It rose 0.1 percent to 101.66 yen. New Zealand’s currency fell 0.7 percent to 83.36 U.S. cents and touched 83.29, the least since March 25. It was little changed at 84.41 yen.
The Aussie was poised for a 2.5 percent decline this week, the biggest since the period ended May 4, 2012. The kiwi has dropped 2.1 percent against the greenback, the biggest five-day slide this year.
Both the Aussie and kiwi are falling due to broad-based buying of the U.S. dollar, said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. The unwinding of bets on gains in the currencies is adding to the pressure, she said.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 30,234 on April 30. It was 29,050 for the kiwi dollar.
The RBA lowered its inflation outlook and reiterated a forecast for “below trend” growth this year. Consumer prices will rise 2 percent in the year to December 2013, compared with as much as 3 percent forecast three months earlier, the central bank said. The RBA predicted 2013 economic growth of about 2.5 percent from a range of 2 percent to 3 percent previously.
After cutting rates on May 7, RBA Governor Glenn Stevens said policy makers were using some of the scope available to them to lower borrowing costs. Traders are betting on 28 basis points of reductions in the next 12 months, down from 34 basis points yesterday, according to a Credit Suisse Group AG index based on swaps.
“The growth estimates aren’t telling you that they necessarily think they’re going to need to use that ammunition,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “It’s a touch less dovish than the market was primed for. There doesn’t seem to be a smoking gun here for a renewed sell-off in the Aussie.”
Australia’s government bonds fell, sending the 10-year yield up 8 basis points, or 0.08 percentage point, to 3.23 percent, set for its highest close since April 17. The three-year rate added seven basis points to 2.64 percent.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to interest rates, rose to 2.85 percent from 2.83 percent.