Aussie, Bond Yields Tumble as Stevens Says Easing Scope Remains

The Australian dollar and yields on government bonds declined after Reserve Bank Governor Glenn Stevens said the inflation outlook provides room for lower interest rates if required.

The Aussie fell to within 1 percent of its lowest level in almost after three years after Stevens said there are signs of previous rate cuts working, “though not, to date, by so much that we see a serious impediment to further easing.” The Australian currency extended earlier declines after government figures showed an unexpected slide in building approvals. New Zealand’s dollar headed for a two-day drop after housing construction permits in the nation also fell.

“The Aussie’s taken a dive,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The key comment really is that rate cuts are working, but it’s no impediment to further easing if needed and that a further Aussie decline won’t be a surprise,” Trinh said in reference to Stevens’s speech.

The Aussie fell 1.4 percent to 90.73 U.S. cents as of 5:10 p.m. in Sydney after it earlier dropped to 90.53 cents, approaching the 89.99 cents level reached on July 12 that was the least since September 2010. Australia’s currency slid 1 percent to NZ$1.1340 and reached NZ$1.1335, a level unseen since November 2008.

Australia’s two-year bond yield, among the most sensitive to interest-rate expectations, dropped to 2.33 percent, the lowest in a year. The yield on benchmark 10-year notes fell four basis points, or 0.04 percentage point, to 3.70 percent.

No Shift

“Recent inflation data do not appear to have shifted” the RBA’s assessment that the outlook for prices may “afford some scope to ease policy further if needed to support demand,” Stevens said today in the text of a speech in Sydney. “The recent decline in the exchange rate seems to make sense from a macroeconomic perspective. It would not be a major surprise if a further decline occurred over time.”

Of 28 economists polled by Bloomberg News, 18 expect RBA policy makers to cut the overnight cash rate target by 25 basis points to 2.5 percent on Aug. 6.

Australia’s statistics bureau said the number of permits granted to build or renovate houses and apartments fell 6.9 percent in June from the previous month, compared with the median economists’ forecast of a 2 percent advance.

Australia’s currency has fallen 0.8 percent against the greenback this month, while its New Zealand counterpart has climbed 3.3 percent, the biggest advance among 16 major peers.

Building Approvals

Statistics New Zealand said today home-building approvals fell 4 percent in June from the previous month, when they climbed a revised 1 percent. Approvals in the second quarter rose to 5,338, the highest since the three months through June 2008.

There’s a 45 percent chance the Reserve Bank of New Zealand will raise its key rate to 2.75 percent or higher by its Jan. 30, 2014 policy decision, from 2.5 percent currently, Bloomberg-compiled swaps data show. That’s down from 61 percent odds seen at the end of last week.

The New Zealand dollar fell 0.6 percent to 79.88 U.S. cents. The nation’s two-year swap rate, a fixed payment made to receive floating rates that is sensitive to interest-rate expectations, lost three basis points to 3.31 percent.

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