The Australian and New Zealand dollars fell against most of their major peers amid speculation the U.S. Federal Reserve will continue tapering stimulus that has buoyed asset prices around the world.
The Aussie slid for a fourth day, its longest losing streak this month, after the Fed yesterday decided to trim the pace of its monthly bond purchases by $10 billion to $75 billion. Volatility in the currency fell to the lowest in almost a month. Australian government bond yields rose the most in two weeks.
“The overall feeling is that the Fed is probably optimistic enough that they’ll probably continue the tapering in coming months,” said Sean Callow, a Sydney-based senior currency strategist at Westpac Banking Corp. “I think we’ll see more weakness in the Aussie near-term.”
The Australian dollar fell 0.2 percent to 88.44 U.S. cents as of 4:43 p.m. in Sydney from yesterday, when it touched 88.21, the lowest since August 2010. One-month implied volatility fell as much as 16 basis points, or 0.16 percentage point, to 8.98 percent, the least since Nov. 21. New Zealand’s dollar dropped 0.6 percent to 81.89 U.S. cents.
Australia’s 10-year government bond yields gained four basis points to 4.27 percent, set for the biggest gain since Dec. 5. Three-year yields rose five basis points to 2.94 percent.
“The question now is how much of the Fed taper is priced in” with the Australian dollar around 88 U.S. cents, Michael Blythe, Sydney-based chief economist at Commonwealth Bank of Australia, wrote in a research note. “We suspect that much of the adjustment is already in place.”
Analysts surveyed by Bloomberg News predict the Aussie will end next year at 88 U.S. cents, while New Zealand’s kiwi dollar finishes 2014 at 80 U.S. cents.
Australia’s dollar has fallen 6.1 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The New Zealand dollar has declined 1.6 percent.
While the Fed pares stimulus, traders are betting the Reserve Bank of Australia may need to cut lending costs to support growth. Overnight-index swaps data compiled by Bloomberg show a 30 percent probability the benchmark interest rate will be below a record-low 2.5 percent by the end of April. The Reserve Bank of New Zealand is almost certainly going to raise its benchmark from a record-low 2.5 percent in the same period, swaps show.
New Zealand’s currency briefly gained after data showed the economy expanded at the fastest pace since 2009. Gross domestic product grew 1.4 percent last quarter from the period before, when it gained 0.3 percent. Manufacturing rose to a five-year high, while exports fell, led by meat and dairy.
“The detail of the GDP release was not nearly as impressive as the headline,” said Westpac’s Callow. “There’s not a great deal of downside in kiwi because it’s got such a powerful positive from the outlook for the RBNZ.”