Australia’s dollar traded near its lowest in almost three years versus the greenback on speculation the Reserve Bank may cut interest rates as soon as next month.
The Aussie held a three-week drop before data this week forecast to show the job market stagnated in June. The South Pacific nation’s yield advantage over the U.S. is deteriorating as the Federal Reserve considers scaling back its quantitative easing program this year. New Zealand’s kiwi dollar rose after a report showed house prices gained last month.
“It’s inevitable that Aussie pushes lower,” said Robert Rennie, the chief currency strategist at Westpac Banking Corp. in Sydney. “Lower rates are clearly required.”
The Australian dollar slid 0.2 percent to 90.51 U.S. cents as of 4:47 p.m. in Sydney from July 5. It reached 90.37 on July 3, the lowest since September 2010. New Zealand’s dollar climbed 0.2 percent to 77.24 U.S. cents, rebounding from a 1.6 percent slide on July 5.
The yield on Australia’s 10-year government bond rose eight basis points, or 0.08 percentage point, to 3.9 percent, after earlier touching 3.998 percent, the highest since June 24.
The top forecaster of the Australian dollar over the past year predicts a further slump, capping the worst annual loss since the 2008 global financial crisis. Canadian Imperial Bank of Commerce expects it to fall to 87 U.S. cents by Dec. 31, for a 16 percent decline this year. The median estimate of 53 economists surveyed by Bloomberg is 91 U.S. cents.
The Aussie’s depreciation so far this year “does provide some support to manufacturers, and exporters in particular, and that’s a good thing,” Australian Treasurer Chris Bowen said in an interview broadcast by Sky News yesterday. It’s dropped 13 percent this year. “The terms of trade have fallen since the budget. Against that, the Australian dollar has come down, so there’s a countervailing impact.”
Manufacturing and services industries need to attract investment and “soak up” employment as the Australian economy undergoes a transition from an unprecedented investment boom in mining, Bowen said.
The RBA has cut its benchmark interest rate to a record-low 2.75 percent to assist the shift toward employment-intensive industries. Interest-rate swaps data compiled by Bloomberg News show traders see a 47 percent chance the RBA will reduce the rate to 2.5 percent at its next meeting on Aug. 6.
Australian hiring probably stagnated last month, following a 1,100 increase in May, according to the median economist estimate in a Bloomberg survey before the July 11 report. Job advertisements declined for a fourth month in June, falling 1.8 percent from the month before, Australia’s statistics bureau said today.
UBS AG’s asset management business is “underweight” on the Australian dollar, amid weakening demand for commodities.
“We think it should be valued about 10 percent below the current levels, around 80 to 85 cents, to put it more in line with fundamentals,” Jose Blanco, Zurich-based regional chief investment officer for Europe, Middle East and Africa at UBS Global Asset Management, said in a July 5 phone interview.
Blanco called the U.S. dollar “attractive,” a view underscored by the currency’s gains after data indicated an improvement in the jobs market.
The case for the Fed to begin tapering stimulus was bolstered after a July 5 report showed payrolls increased by 195,000 in June for a second straight month. Chairman Ben S. Bernanke said June 19 the central bank may reduce its monthly $85 billion of bond purchases this year and end it in mid-2014 if growth meets policy makers’ estimates.
“Financial markets just have to accept the inevitable, that the Fed is going to start tapering its monthly asset purchases,” Westpac’s Rennie said. “And that is going to be an important factor that will continue to weigh on the Australian dollar.”
Speculation that stimulus will be reduced in the U.S., paired with bets of more RBA rate cuts, have made the Aussie the worst performer in the past three months among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. It has tumbled 9.7 percent, compared with a 5.5 percent rise by the greenback. The kiwi dollar has slumped 4.7 percent.
New Zealand’s currency was supported by a report that showed housing prices rose last month, adding pressure on the central bank to increase interest rates to prevent a housing bubble. Prices gained 0.5 percent from May, and 5.9 percent from a year earlier, according to the Real Estate Institute of New Zealand.
Traders see a 36 percent chance the Reserve Bank of New Zealand will raise the benchmark rate from a record-low 2.5 percent by its December meeting, according to swaps data compiled by Bloomberg.