Aussie Is Biggest Loser in May With Kiwi as Commodity Ties Bind

  • Both currencies under pressure on Fed rate outlook, RBS says
  • Australian capital expenditure drops 5.2% in first quarter

The Australian and New Zealand dollars are the worst-performing developed-nation currencies this month as commodity prices decline and traders boost bets the Federal Reserve will raise interest rates.

The Aussie has slumped 5.2 percent in May as prices of iron ore, the nation’s biggest export earner, have tumbled more than 20 percent. The kiwi has lost 3.7 percent, extending declines Thursday as Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, forecast a lower-than-expected payout to its farmer shareholders. The Aussie fell earlier Thursday after business investment was worse than economists predicted.

“Both commodity currencies are under pressure as Fed expectations firm ahead of next month’s FOMC meeting,” said Mansoor Mohi-uddin, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “The capex report underscores how investment is continuing to weaken as Australia’s mining investment boom ebbs.”

The Aussie rose 0.2 percent to 72.11 U.S. cents as of 12:18 p.m. in Tokyo on Thursday after declining as much as 0.5 percent. The kiwi slid 0.2 percent to 67.22 U.S. cents after falling to 66.97, the weakest since March 28.

For a story on how the Aussie’s decline may halt on central bank inaction, click here.

Fed Outlook

There’s a 54 percent chance the Federal Reserve will increase U.S. rates by its July meeting, up from 26 odds at the end of last month, according to data compiled by Bloomberg based on fed fund futures. The increasing probability is bolstering the U.S. dollar and adding to concern higher borrowing costs in the world’s biggest economy will curb demand for assets correlated to global growth.

Private capital expenditure in Australia dropped 5.2 percent last quarter, the Bureau of Statistics said. That was a bigger decline than the 3.5 percent predicted in a Bloomberg survey of economists. Investment in buildings and structures slid 7.9 percent.

Auckland-based Fonterra predicted a farmgate milk price of NZ$4.25 a kilogram of milksolids for the season ending May 2017. ASB Bank economists had predicted a forecast of NZ$4.80 and Bank of New Zealand expected NZ$4.60.

“The New Zealand dollar is now challenging pivotal support and could accelerate through 67 cents, although support remains evident all the way down to 66 cents,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland.

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