Australia’s dollar touched the lowest in almost three years as bets the Reserve Bank will cut interest rates next week outweighed better-than-expected manufacturing data out of China, the nation’s biggest trading partner.
The Aussie pared earlier losses after government figures showed China’s manufacturing Purchasing Managers’ Index unexpectedly advanced last month. Traders’ projections for borrowing cost reductions in the coming year climbed to the most in 12 weeks before the RBA sets monetary policy on Aug. 6. New Zealand’s currency extended declines to a fourth day, set for the longest losing streak in more than a month.
“The initial reaction to the Chinese PMI was very positive for risk, particularly for the Aussie,” said Callum Henderson, the global head of currency research at Standard Chartered Plc in Singapore. “We’ve been bearish medium-term on the Aussie for quite some time. The weakness in the currency is due both to domestic and external factors.”
The Aussie dropped 0.2 percent to 89.67 U.S. cents as of 4:41 p.m. in Sydney, after falling as much as 0.6 percent to 89.27, the least since September 2010. New Zealand’s kiwi dollar lost 0.2 percent to 79.68 U.S. cents after declining 1.3 percent in the previous three days.
Australia’s two-year bond yield, among the most sensitive to interest-rate expectations, touched 2.28 percent, the lowest since July 2012. The yield on benchmark 10-year notes dropped six basis points, or 0.06 percentage point, to 3.67 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.33 percent.
Interest-rate swaps data compiled by Bloomberg show traders see a 92 percent chance that RBA Governor Glenn Stevens and his board will lower Australia’s overnight cash rate target by 25 basis points to 2.5 percent next week.
A Credit Suisse Group AG index based on swaps had indicated traders’ expectations for a 57-basis-point reduction to the benchmark over the next 12 months, the most since May 7 and the biggest predicted cut among 10 developed-nation central banks tracked by bank.
“The market is still in a mood to sell rallies in the Aussie, particularly with RBA rate-cut expectations still ramping up,” said Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd. “We don’t think enough easing is priced into the curve. Given this, we suspect bounces in the currency will be short-lived.”
Australia’s statistics bureau said today the nation’s export price index declined 0.3 percent in the second quarter, compared with analyst estimates for a 0.3 percent gain.
The Aussie fell 11.5 percent in the past three months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi had the second-biggest decline, falling 4.1 percent.
China’s manufacturing PMI was at 50.3, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compared with the 49.8 median forecast of 35 analysts in a Bloomberg News survey and June’s 50.1 level.
Some investors are “skeptical” of Chinese data, and that may lead them to ignore the jump in the measure, according to Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities Inc. Bearish views on the Chinese economy are “preferred” by some investors, Beacher said in an interview.
Another report today showed a separate gauge of Chinese manufacturing by HSBC Holdings Plc and Markit Economics fell to 47.7 in July from 48.2 the previous month. Readings above 50 indicate expansion.