Aussie Near Eight-Week Low Versus Dollar on Fed Tapering Bets

Australia’s dollar traded near the lowest level in eight weeks against the greenback as traders weighed the timing of a reduction in Federal Reserve stimulus that has buoyed asset prices around the world.

The Aussie fell for a fourth day yesterday after a gauge of U.S. business activity improved. Technical indicators signal the currency could decline to 90 U.S. cents. Australia’s benchmark 10-year bond yield touched its highest since March 2012. New Zealand’s dollar rallied from an eight-week low after Reserve Bank Governor Graeme Wheeler said the kiwi could strengthen once the central bank begins raising interest rates next year.

“The recent run of data out the States has been good, and that increases the possibility of earlier tapering, putting downward pressure on the Aussie dollar,” said Kieran Davies, chief economist at Barclays Plc in Sydney. “The Aussie is likely to trend lower over the coming months.”

The Australian currency was little changed at 93.07 U.S. cents as of 5:25 p.m. in Sydney from yesterday, when it touched 92.69, the lowest since Sept. 16. It fell 2.4 percent over the previous four sessions, the biggest such decline since August. The New Zealand dollar rose 0.1 percent to 82.32 U.S. cents after reaching 81.69 yesterday, the least since Sept. 17.

Australia’s 10-year government bond yields retreated three basis points, or 0.03 percentage point, to 4.26 percent after rising to as high as 4.3 percent.

Taper Talk

The Chicago Fed said yesterday its national index of economic activity rose to 0.14 in September from a revised 0.13 the month before, with 47 of the 85 monthly individual indicators making positive contributions. Last week, reports showed an unexpected acceleration in U.S. economic growth and job creation.

U.S. policy makers will pare the monthly pace of bond buying to $70 billion at their March 18-19 meeting from the current pace of $85 billion, according to the median of 32 economist estimates in a Bloomberg News survey on Nov. 8.

“The AUD is welded to 93 U.S. cents today, dampened by simmering expectations for U.S. Fed tapering in the next few months,” Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, wrote in a note to clients. “We target 92 U.S. cents by year end.”

The median estimate of analysts surveyed by Bloomberg is for the Aussie to end the year at 93 U.S. cents, dropping to 88 next year. New Zealand’s dollar will close 2013 at 82 U.S. cents and 2014 at 78, they predict.

Australia’s dollar failed to sustain gains driven by signs of improving consumer sentiment. The Westpac Banking Corp. and Melbourne Institute index of consumer confidence rose 1.9 percent this month, data today showed.

Technical Indicators

The Australian currency’s 10-day moving average dropped below its 50-day moving average today, forming a so-called death cross for the first time since April. That was the start of a three-month, 14 percent tumble.

The Aussie is also at so-called neckline resistance in what could form a head-and-shoulders pattern, another potential signal of further declines.

“This is quite a crucial level, where you have a couple of indicators lining up to confirm the signal,” said Desmond Chua, a Singapore-based market analyst at CMC Markets. “We could actually go back below 90 U.S. cents. I do think, however, we’ll face a baseline support at 90, because the round numbers are always a tough level to beat.”

Resistance refers to an area on a chart where analysts anticipate orders to sell are clustered, and support is where orders to buy accumulate.

New Zealand’s currency recovered from an eight-week low of 81.69 U.S. cents touched after the central bank said a drop in home-building approvals and a decline in attendance at open homes are evidence that the limits on low-deposit lending are “starting to affect the housing market.” The comment was made in the central bank’s semi-annual Financial Stability Report.

“The concern will be that the interest differential between New Zealand and any of the advanced economies will widen,” RBNZ’s Wheeler told a parliamentary committee in Wellington today. “That could increase pressure on the exchange rate.”

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