Aussie Set for Biggest Weekly Drop Versus Yen Since ’11 on China

Australia’s dollar dropped versus the yen, set for its worst weekly rout since 2011, before Chinese data tomorrow forecast to show growth in imports slowed, dimming the demand outlook for commodities.

Implied volatility of the Aussie against the U.S. currency was set for a sixth weekly advance, the longest in two years, before a U.S. jobs report today that may help investors estimate when the Federal Reserve will start reducing monetary stimulus. Australia’s government bonds extended their gains to a third day amid increasing bets the Reserve Bank will cut borrowing costs to shore up economic growth.

“We’re bearish on the currency,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney, referring to the Aussie. It’s a little bit of a surprise that “Chinese growth is so sluggish,” he said.

The Australian currency dropped 1 percent to 92.13 yen as of 5:10 p.m. in Sydney after touching 90.84, the least since Jan. 2. It’s slumped 4.2 percent in the five days through today, poised for the biggest plunge since September 2011. New Zealand’s kiwi dollar declined 0.6 percent to 77.31 yen, having fallen 3.2 percent this week.

Australia’s dollar slid 0.8 percent to 95.17 U.S. cents, extending its fifth weekly drop to 0.6 percent. New Zealand’s dollar lost 0.5 percent to 79.86 U.S. cents, trimming its weekly advance to 0.5 percent.

Australian Yields

The yield on Australia’s benchmark 10-year government note dropped 9 basis points to 3.26 percent, extending its weekly decline to 10 basis points. Similar-maturity note yields in New Zealand fell 5 basis points to 3.55 percent.

One-month implied volatility for the Aussie against the greenback added 73 basis points to 13.3 percent today. The measure of expected moves used to price options gained 1.53 percentage points since May 31 and 6.3 percentage points in the six weeks through today. A basis point is 0.01 percentage point.

“Volatility has long been the nemesis of the carry trade,” Ray Attrill, the global co-head of foreign-exchange strategy in Sydney at National Bank of Australia Ltd. wrote in a research note today. “In the absence of a retracement of at least half of the recent spike in volatility, there is no reason to expect interest in the Australian dollar as a carry trade currency to revive.”

Investors who borrowed dollars to fund investments in Australia’s currency in carry trade have lost 6.4 percent in the past month, the worst performance after South Africa’s rand among 16 major currencies. The Aussie may fall to 93 U.S. cents in December, Attrill forecasts.

China, U.S.

Imports in China, Australia’s biggest overseas market, probably increased 6.6 percent in May from a year earlier, according to the median forecast of economists surveyed by Bloomberg News. The Standard & Poor’s GSCI Spot Index of 24 commodities has fallen 4 percent since the of March, poised for the biggest quarterly decline in a year.

In the U.S., companies are estimated to have boosted payrolls by 163,000 workers last month, down from 165,000 in April, a separate poll of economists shows before the release of the figures today.

Traders see the Reserve Bank of Australia lowering borrowing costs by 47 basis points in the next 12 months, a Credit Suisse Group AG index based on overnight-index swaps showed. The index indicated 36 basis points of cuts on May 31.

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