The Aussie dropped below 75 U.S. cents to a six-year low as the heightened risk of a Greek exit from the euro added to slumping commodity prices in spurring traders to sell the South Pacific nation’s currency.
Australia’s dollar was already sliding as iron ore, the country’s biggest export earner, tumbled amid a glut in supply and concern that demand will shrink as China’s economy slows. Swaps traders boosted the odds of a central bank interest-rate cut by year-end to 60 percent, from 50 percent on Friday. With all the votes counted in the Greek referendum on austerity measures required for financial aid, 61 percent said “no,” data on the Interior Ministry website show.
Reserve Bank of Australia Chief Glenn Stevens said in December he would prefer about 75 cents for the Aussie. He spoke repeatedly this year of the need for a lower exchange rate and cut the cash rate in February and May to help the economy cope with the collapse of a record mining investment boom.
“There were a number of factors that were already driving the Aussie lower, including weakness in the terms of trade and the strengthening of the U.S. dollar,” said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “The Aussie is heading down toward 72 to 73 cents, the only question is how quickly it gets there, and the impact of the Greek referendum on risk assets has given it an extra push.”
The Australian currency dropped as much as 0.9 percent to 74.52 cents and was down 0.4 percent at 74.91 cents as of 7:02 a.m. in London. It plunged 3.2 percent in the two weeks through July 3 amid concern a seven-day selloff in iron ore and the steepest plunge in Chinese equities since 1992 will hurt the South Pacific nation’s economy.
“Aussie is a currency that nobody really wants to have at the moment,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “Short term, some bounces will be quite quickly sold on the Aussie.”
Risk reversals show traders are becoming more bearish. The premium that traders pay for contracts giving the right to sell the Australian dollar, compared with those to buy, widened to a two-month high of 1.50 percentage points, from 1.37 on July 3, data compiled by Bloomberg show.
In addition to jawboning the currency, the RBA has sought to reduce the attractiveness of the Australian dollar by cutting its cash benchmark by 2.75 percentage points since late 2011 to a record low 2 percent. That still leaves it above every other developed-nation peer except for New Zealand and the global hunt for yield remains a source of support for the Aussie.
The RBA will hold interest rates at a record-low 2 percent when it meets on Tuesday, economists and markets predict.
The 10-year Australian sovereign bond yielded 2.89 percent in Sydney, 0.62 percentage point more than similar tenor U.S. debt. Australia also offered 1.60 percentage points more than the average of the other seven top-rated debt markets, helping attract investors such as central banks and sovereign wealth funds.
Central bank holdings of Australian dollars surged 12 percent to a record A$149.4 billion ($112 billion) in the first quarter, data published June 30 by the International Monetary Fund show.