Aussie Drops Versus Peers as Trade, Building Data Miss Forecasts

Australia’s dollar retreated from a one-week high versus its U.S. peer after reports today showed the nation had a bigger-than-expected trade deficit in August and building approvals climbed less than economists forecast.

The Aussie slid against most of its 16 major counterparts, reversing gains from yesterday after the Reserve Bank of Australia kept borrowing costs unchanged. New Zealand’s kiwi weakened for a second day versus the greenback after John McDermott, assistant governor and head of economics at the nation’s central bank, said the neutral interest rate appears to have fallen, reflecting weaker productivity growth.

“The economy is still going to need to do more work and that’s where the RBA has to come into the equation with additional interest-rate cuts,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “That’s got to probably weigh on Aussie dollar sentiment.”

The Australian dollar declined 0.4 percent to 93.58 U.S. cents as of 4:44 p.m. in Sydney after touching 94.35 yesterday, the most since Sept. 23. New Zealand’s currency dropped 0.6 percent to 82.24 U.S. cents.

Australia’s 10-year government bond yield was unchanged at 3.94 percent after earlier reaching 4 percent, a level unseen since Sept. 18. The yield on debt due in three years peaked at 2.96 percent, the highest since Sept. 11.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell 1 1/2 basis points, or 0.015 percentage point, to 3.44 percent.

Data Miss

The trade deficit in Australia was A$815 million ($763 million) in August from a revised A$1.38 billion the previous month, the statistics bureau said today. That compares with the median estimate for a A$400 million shortfall by economists surveyed by Bloomberg News.

A separate report showed the number of permits granted to build or renovate houses and apartments rose 7.7 percent in August from a year earlier, missing analyst forecasts for a 12.8 percent gain. Permits increased a revised 28.8 percent in July.

“The external balance is still a negative for the Aussie, and of course the domestic side remains fragile,” Callum Henderson, the global head of currencies research at Standard Chartered Plc in Singapore, said in a Bloomberg Television interview today. “The big trend in the Australian dollar is still down.”

RBA Governor Glenn Stevens and his board held the bank’s benchmark at a record-low 2.5 percent yesterday, saying earlier cuts are still filtering through the economy.

Rate Call

National Australia Bank Ltd. said it expects a rate reduction in February 2014, according to a report today by economists led by Alan Oster. Interest-rate swaps data compiled by Bloomberg show traders see a 45 percent chance policy makers will cut rates to 2.25 percent or lower by then, from 62 percent odds yesterday.

The Aussie has fallen 8.7 percent this year versus nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the second-worst performance within the gauges. New Zealand’s kiwi has climbed 1.8 percent.

The kiwi held losses versus its U.S. peer after the Reserve Bank of New Zealand’s McDermott said the bank “believes that interest-rate settings should remain stimulatory for some time yet” in a speech today.

“Lower neutral interest rates imply that the interest rates faced by household and businesses over the longer haul are likely to be lower than in the past,” McDermott said. “But interest rates will still need to be adjusted in response to the state of the economy.”

The neutral rate is where monetary policy doesn’t restrain or stimulate the economy.

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