Sweden’s krona plunged by the most in almost three years and Australia’s dollar tumbled as central banks around the world ramp up action that weighs on their currencies to support growth.
The krona slumped to its weakest level since September 2011 against the euro after the Riksbank cut its main interest rate by more than analysts estimated. The Aussie weakened after Reserve Bank Governor Glenn Stevens said it was “overvalued.” Europe’s 18-nation shared currency was little changed after the European Central Bank kept interest rates at record lows. A press briefing by ECB President Mario Draghi at 2:30 p.m. in Frankfurt will coincide with U.S. jobs data.
The Riksbank decision “was massively more dovish than what most people in the market expected,” said Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm. The Riksbank wants “to engineer a weaker currency,” he said. “If you deviate a lot from global monetary policy and try to run your own independent monetary policy, you run the risk of a stronger currency.”
Sweden’s steps to help boost inflation echo currency-debasing policies of international counterparts’ as officials grapple with anemic global growth. The ECB introduced a package of measures to ward off the threat of deflation in the euro area last month and the Norwegian krone had its biggest drop in almost a year on June 19 after its central bank said it may have to cut interest rates.
The krona slid 1.8 percent to 9.3286 per euro at 12:45 p.m. London time, its biggest decline since Sept. 12, 2011. Sweden’s currency touched 9.3887, the weakest level in almost three years. The krona dropped 1.9 percent to 6.8335 per dollar.
SEB revised its third-quarter krona forecast to 9.40 per euro from a predicted range of 9.25 to 9.30 before the interest-rate decision, Hammer wrote in an e-mail.
The Aussie fell 0.7 percent to 93.79 U.S. cents after depreciating 0.6 percent yesterday. It’s falling after a rally took it to 95.05 on July 1, the strongest level since Nov. 7.
Sweden’s central bank cut its benchmark rate by 0.5 percentage point to 0.25 percent after analysts had forecast a 0.25 percentage-point reduction. It also predicted no increases in borrowing costs until the end of next year.
Investors are under-estimating the probability of a “significant fall” in the Australian dollar at some point, RBA Governor Stevens said. “Most measurements would say it is overvalued, and not just by a few cents,” he said in the text of a speech delivered in Hobart today. Policy makers on July 1 held the interest rate unchanged at a record-low 2.5 percent where it’s been since August.
“Right now I’d rather sell the Aussie dollar,” John Normand, head of foreign-exchange and international-rates strategy at JPMorgan Chase & Co. in London, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “There’s a problem between the level of the currency and what’s happening in commodity prices. Most importantly the central bank seems like it might even cut to respond to that.”
In the U.S., the ADP Research Institute reported yesterday employment at companies climbed 281,000 in June, exceeding the most optimistic forecast in a Bloomberg survey. A Labor Department release today will show nonfarm payrolls rose by 215,000 workers in June after increasing by 217,000 the prior month, according to the median estimate of economists surveyed by Bloomberg.
“After the stronger-than-expected ADP jobs report, as you’d expect, positive expectations for the nonfarm payrolls have emerged,” said Yujiro Goto, a currency strategist in London at Nomura Holdings Inc., Japan’s largest brokerage. “That’s providing direct support for the dollar.”
The greenback gained 0.1 percent to 101.89 yen, after touching 101.96, the highest since June 25. The euro traded at at $1.3652 and Europe’s shared currency advanced less than 0.1 percent to 139.10 yen.
All economists surveyed by Bloomberg predicted the ECB’s decision today. At their June 5 meeting, policy makers cut the refinancing rate and moved the deposit rate below zero for the first time, signaling a penalty charge for banks depositing cash. Draghi also said he would introduce targeted offerings of liquidity to banks to encourage them to lend, and that officials would start work on purchases of asset-backed securities.
French Prime Minister Manuel Valls said the ECB needs to go further to weaken the shared currency. Central bank policy can’t just focus on interest rates and an overvalued euro is bad for industry and growth, Valls told Les Echos in an interview published yesterday.
“The ECB’s interest-rate cut presents serious policy dilemmas for the euro zone’s smaller neighbors,” Geoffrey Yu, a senior currency strategist at UBS AG in London, wrote in e-mailed note today. “They all fear that deflation will be aggressively exported to their countries and there is now a race to the bottom to ensure that such price expectations do not become entrenched.”
The Swedish and Norwegian central banks may have to consider setting an exchange-rate peg against the euro, UBS’s Yu said. Switzerland introduced a 1.20 franc-per-euro cap in 2011 after the currencies approached parity as investors sought Swiss assets as a haven from the euro region’s debt crisis.
The dollar has fallen 3.6 percent in the past year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen dropped 5.6 percent in the period, the worst performer after the krona, which weakened 5.9 percent, while the euro gained 1.8 percent.