The Australian dollar snapped its biggest consecutive two-day gain since November 2011 on speculation the Reserve Bank may cut interest rates to a record next month and China’s economy will slow.
New Zealand’s kiwi dollar also weakened as Chinese stocks headed for the first decline in three days, damping demand for higher-yielding assets. Declines in both currencies were limited amid speculation Federal Reserve Chairman Ben S. Bernanke will signal the U.S. economy still requires accommodative monetary policy when he addresses Congress today.
“There are still some downside risks for the Aussie,” said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “There’s a number of factors supporting that -- the RBA is talking the currency down, the prospect for another rate cut, and additionally the uncertainty around China.’
The Australian currency fell 0.6 percent to 91.98 U.S. cents as of 5:08 p.m. in Sydney following a 2.3 percent, two-day gain. It fetched 91.59 yen from 91.69. New Zealand’s dollar slipped 0.6 percent to 78.48 U.S. cents and bought 78.16 yen from 78.22.
The Shanghai Composite Index fell 1 percent today.
Chinese Premier Li Keqiang said the nation will seek to keep economic growth, employment and inflation within limits, avoiding ‘‘wide fluctuations,” without elaborating on what the government deems acceptable. The comments came at a forum of advisers and executives yesterday, according to a summary of the event published on the government’s website.
Gross domestic product in the world’s second-largest economy slowed for a second quarter as growth in factory output and fixed-asset investment weakened, reports showed July 15.
The Aussie surged yesterday after minutes of the Reserve Bank of Australia’s last meeting showed policy makers’ inflation outlook is being affected by recent currency declines. The nation’s statistics bureau will release second-quarter inflation figures on July 24.
“There’s very important inflation data next week, so there’s limited scope for the market to unwind RBA expectations in the near term,” said Tony Morriss, the head of interest-rate research at Australia & New Zealand Banking Group Ltd. in Sydney. “The currency was mentioned numerous times in the minutes, and our sense is of a growing sense of comfort that this recent fall in the Australian dollar will be sustained, and that will mean that monetary conditions will have been eased quite a lot in Australia.”
Traders are still pricing in about a 50 percent chance the RBA will reduce borrowing costs from an all-time low by a quarter percentage point to 2.5 percent next month, according to interest-rate swaps data compiled by Bloomberg.
The local dollar has lost 9.4 percent over the past three months, the biggest drop among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. New Zealand’s dollar fell 5.3 percent.
Declines in both currencies were limited before Bernanke has a chance to use testimony to Congress to drive home his message that winding down asset purchases won’t presage an increase in the Fed’s benchmark interest rate.
He said last month the central bank may begin to slow its $85 billion in monthly bond purchases this year and end them in 2014 if economic growth meets policy makers’ goals. The Fed chairman said on July 10 that the U.S. needs “highly accommodative monetary policy for the foreseeable future.”
“We’re seeing a lot of consolidation in the greenback as investors are wary that Mr. Bernanke is going to wear his dovish cap,” said Andrew May, a sales trader at CMC Markets in Auckland. “That’s moved an incredible amount of attraction back to the resources sector, mainly the kiwi and the Aussie.”