The Australian dollar dropped to a three-week low as global equity declines curbed demand for higher-yielding assets amid prospects of military action against Syria.
The Aussie slid versus all of its 16 major counterparts and touched a three-year low against the euro as the U.S., France and the U.K. signaled a possible armed response against Syria after concluding the government used chemical weapons against civilians. New Zealand’s currency touched a three-week low as volatility headed for the highest closing level in more than a month amid a selloff in emerging-market assets.
“The market is bracing for an escalation of Middle East tensions and a possible strike against Syria,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “There’s a bit of an emerging-market contagion flowing through the Aussie and the kiwi.”
The Australian dollar slid 0.9 percent to 89.08 U.S. cents as of 4:50 p.m. in Sydney after touching 89.02 cents, the lowest since Aug. 5, when it dropped to a three-year low. Benchmark 10-year yields fell three basis points, or 0.03 percentage point, to 3.91 percent.
The Aussie touched A$1.5031 per euro, the weakest since May 2010, before trading 0.8 percent lower at A$1.5023.
New Zealand’s currency reached 77.48 U.S. cents, the weakest since Aug. 5, before buying 77.60 cents, 0.5 percent lower from yesterday’s close. The nation’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.39 percent from 3.38 percent yesterday, the lowest close since Aug. 8.
The MSCI Asia Pacific Index of shares fell 1.6 percent. The Standard & Poor’s 500 Index tumbled 1.6 percent yesterday.
U.K. Prime Minister David Cameron said yesterday that while no decision has been made on a course of action against Syria, it would be legal and proportionate. He summoned Parliament back from a recess to debate the matter.
U.S. President Barack Obama plans to release this week an intelligence assessment of the alleged Aug. 21 attack outside of Damascus, and the administration has begun consultations with U.S. congressional leaders.
Exchange data compiled by Bloomberg show overseas investors have pulled $579.5 million from Indian stocks this month as of Aug. 26, as the nation’s currency plunged to a record. They’ve offloaded $464.2 million of Indonesian equities and sold $1.2 billion of Thai shares.
The Australian dollar has slumped 12 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Its New Zealand peer has fallen 2.4 percent.
Volatility on one-month Aussie options climbed for a third day, rising 39 basis points to 13.56 percent, set for the highest close since July 8. The equivalent figure for kiwi dollar options rose jumped 36 basis points to 13.91 percent, headed for the most since July 15.
There’s a 90 percent chance Reserve Bank of Australia policy makers will keep benchmark borrowing costs at a record-low 2.5 percent when they next meet on Sept. 3, interest-rate swaps data compiled by Bloomberg show. Traders see a 61 percent probability officials will cut the rate to 2.25 percent or less by their Dec. 3 gathering.
The South Pacific nation’s statistics bureau said today construction work done in the three months through June fell 0.3 percent from the previous period, when it declined a revised 1.9 percent. Economists surveyed by Bloomberg News predicted a 1 percent advance.