Aussie Drops on Fed Rate Outlook as Goldman Cuts China Forecast

  • Speculators raise bearish Aussie bets to a five-month high
  • Kiwi slumps as business confidence drops to least since 2009

Australia’s dollar dropped toward a six-year low versus the greenback after Federal Reserve Vice Chairman Stanley Fischer kept alive speculation that U.S. interest rates will increase next month and Goldman Sachs Group Inc. cut its forecast for Chinese growth.

The Aussie declined with its New Zealand counterpart after Fischer said on Aug. 29 that the Fed should not wait until it hits its inflation goal to act. The potential for a rate increase is boosting the allure of the U.S. currency relative to those of Australia and New Zealand, which are being hurt by the slowdown in China, the biggest trading partner of both nations. The Reserve Bank of Australia sets monetary policy Tuesday.

“What we’re looking at is particularly some concern heading into the RBA tomorrow on what they’re going to say about international developments, especially focused on China,” said Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd. “What we’re looking out for this week is the dollar strengthening back again given that Fischer has failed to rule out a September rate hike.”

The Aussie fell 0.7 percent to 71.21 U.S. cents at 8:17 a.m. in New York and the New Zealand dollar dropped 1.1 percent to 63.96 U.S. cents. Australia’s currency touched 70.50 on Aug. 24, a level unseen since April 2009.

Aussie Bears

Speculators last week raised net bearish Australian-dollar positions to the highest since March, when they were at a record in Commodity Futures Trading Commission data going back more than two decades.

The Australian and New Zealand dollars led declines among developed-market currencies this month, dropping at least 2.5 percent against the greenback as China surprised investors by devaluing the yuan, sending global equity markets into a tailspin. New Zealand’s dollar added to losses on Monday after data showed business confidence in the nation sank to a six-year low.

Chinese manufacturing contracted in August for the first time since February, data due Tuesday will show, according to economist forecasts compiled by Bloomberg.

Futures contracts indicate there’s a 38 percent chance of a Fed
shift in September, while the odds of an increase by year-end rose to 61 percent from as low as 46 percent on Aug. 25, according to data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

Fischer Comments

“With inflation low, we can probably remove accommodation at a gradual pace,” Fischer said on a panel at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.”

Data due Friday will probably show U.S. employers added more than 200,000 jobs in August for a fourth straight month, according to the median estimate in a Bloomberg survey of economists.

“We expect the U.S. dollar to remain firm, especially at the start of this week, as currency markets continue to adjust to this weekend’s Jackson Hole Fed symposium,” Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia, said in a video broadcast. “We expect the Australian dollar to remain fairly volatile.”

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