Australia’s dollar declined toward an 11-month low after a private report showed business confidence slid amid bets that the Reserve Bank will cut interest rates further to curb the currency’s strength.
The so-called Aussie weakened against most of its 16 major peers after Barclays Plc cut its forecast for the currency, citing Australia’s falling yield advantage. New Zealand’s dollar held a five-day loss versus the U.S. greenback as the premium on the South Pacific nation’s 10-year note rate over Treasuries was near a four-year low.
“The Australian dollar has a little bit more room to decline,” said Takuya Kawabata, an analyst at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin-trading company. “A recovery in the Aussie above $1 and a further advance would fan speculation the RBA will cut borrowing costs again.”
Australia’s dollar lost 0.4 percent to 99.86 U.S. cents as of 4:14 p.m. in Sydney after touching 99.61 on May 10, the weakest since June 14 and halting a record 10-month stretch of trading above parity. New Zealand’s currency was little changed at 83.03 U.S. cents.
The extra yield that investors receive to hold New Zealand’s benchmark 10-year note instead of similar-maturity Treasuries was at 1.44 percentage points after falling to 1.42 on May 3, the least since January 2009.
National Australia Bank Ltd. said today its index of business confidence in the country fell to minus 2 in April, the lowest since November, from 2 in March. A separate report from the statistics bureau showed today that home-loan approvals rose 5.2 percent in March, the most in four years.
“On balance, the data remains consistent with the RBA remaining on hold for now but leaving the door open for further rate cuts, if needed,” Alvin Pontoh, an Asia-Pacific macro strategist in Singapore at TD Securities Inc., wrote in a research note. The recent decline in the Australian dollar “adds to our case for ‘wait and see’ in the near term.”
The RBA lowered the overnight cash-rate target by a quarter percentage point to 2.75 percent on May 7, saying the exchange rate has been at “a historically high level over the past 18 months, which is unusual.” Traders see about a 60 percent chance that the central bank will reduce the rate in three months, according to data compiled by Bloomberg on overnight-index swaps.
Barclays lowered its 12-month projection for Australia’s dollar to 93 U.S. cents from 95. The recent “surprise” rate cut from the RBA has further undermined Australia’s yield advantage and will weigh on the Aussie, Hamish Pepper and Nick Verdi, foreign-exchange strategists in Singapore at Barclays, wrote in a research note today.
The yield on Australia’s benchmark three-year yield touched 2.47 percent on May 7, the lowest since Oct. 16, and was at 2.6 percent today.
Hedge funds and other large speculators cut their bullish bets on the Aussie, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers on an advance in Australia’s dollar compared with those on a decline dropped 78 percent on May 7, the most in a year, to 6,630.
Demand for the currencies of Australia and New Zealand was supported as Chinese data showed today that industrial production climbed 9.3 percent in April from a year earlier and retail sales jumped 12.8 percent. Both were in line with the median estimates of economists surveyed by Bloomberg News.
“The fundamental backdrop of the Australian dollar is very positive,” John Horner, a currency strategist in Sydney at Deutsche Bank AG, said in an interview with Bloomberg Television before the release of the Chinese data. The currency is expected to “recover from this weakness as some of the negative sentiment on China gets reversed in a month ahead.”