Aussie Falls Second Day as Joblessness Rises; Loomis Favors Kiwi

Australia’s dollar declined for a second day after a domestic report showed the unemployment rate climbed to match the highest level since 2009 and ahead of U.S. data forecast to show consumer spending accelerated.

The Aussie is near levels it was trading at 30 years ago when exchange controls were lifted, prompting calls for the currency to weaken to stimulate growth. New Zealand’s kiwi touched a five-year high against Australia’s dollar after the smaller country’s central bank said rate increases may be needed as inflation pressures build. The key rate will probably need to rise 225 basis points over the next 2 1/4 years, Reserve Bank of New Zealand Governor Graeme Wheeler said today.

“The downtrend we’ve seen in Aussie-U.S. will resume,” said Michael McCarthy, chief strategist at CMC Markets in Sydney. “The acceleration of growth in the U.S. is certainly above Australia at the moment.”

The Australian currency fell 0.2 percent to 90.27 U.S. cents at 4:57 p.m. in Sydney after dropping 1.1 percent yesterday. It declined 0.1 percent to 92.59 yen, adding to a yesterday’s 1.5 percent slide. The currency fell as low as NZ$1.0893, the weakest since October 2008. The kiwi rose 0.3 percent to 82.84 U.S. cents and gained 0.5 percent to 84.98 yen.

Australia’s unemployment rate climbed to 5.8 percent last month from 5.7 percent in October, the statistics bureau said in Sydney today. The nation’s employers added 21,000 jobs in November, beating the median forecast of 10,000 in a Bloomberg News survey.

Currency Float

Architects of the Australian dollar’s float in December 1983 say the currency must devalue and economic reform be renewed to avert a recession. Peter Jonson, who advised the central bank chief of the time, and Ross Garnaut, who counseled then-Prime Minister Bob Hawke, say the resource investment boom has rendered Australia uncompetitive.

“There are some quite strong parallels,” said Jonson, a former head of the Reserve Bank of Australia’s research department who has observed the nation’s economy for more than 40 years. “Our cost base is so far out of line that short of an accord or something to help get a more sensible cost base, there’s only one other way to fix it and that’s to have a recession.”

Based on purchasing power parity, the Aussie is 24 percent overvalued versus the greenback, according to Organization for Economic Cooperation and Development data.

Inflation Pressure

Australia’s dollar has dropped 12 percent this year, the steepest decline after the yen among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The kiwi has climbed 3.3 percent.

Dan Fuss, whose Loomis Sayles Bond Fund has had better returns than 97 percent of its peers over the past three years, said the Aussie faces hurdles because of the nation’s cost structure and dependence on iron ore. The New Zealand dollar is the most attractive, Fuss said, adding that he also favors the currencies of Canada, Mexico and Australia. He spoke in an interview in Tokyo.

New Zealand’s central bank kept its key rate at a record-low 2.5 percent today while saying the current level of stimulus is becoming unnecessary. The country is set to become one of the first developed nations to begin raising borrowing costs as accelerating growth and a housing boom stoke price pressures.

“We want to send a message that we are serious about the policy objectives,” the RBNZ’s Wheeler told reporters today. “Our forecasts suggest the cash rate will need to increase around 2 1/4 percent over the next 2 1/4 years.”

New Zealand’s two-year swap rate, which is sensitive to policy expectations rose two basis points, or 0.02 percentage point, to 3.75 percent. Australia’s three-year bond yield fell four basis points to 3 percent and the 10-year rate declined three basis points to 4.32 percent.

“There’s a growing sense that the RBNZ could look at raising interest rates, but they’re not quite there yet and that’s to do with the high exchange rate,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney.

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