Australian Dollar Weakens After RBA Cuts Interest Rates; NZ Currency Drops
Australia’s dollar fell for a third day against its U.S. counterpart, the longest losing streak in six weeks, after the Reserve Bank cut interest rates and stocks tumbled on concern Europe’s debt plan will unravel.
The Aussie dropped against the majority of its 16 most- traded peers after RBA Governor Glenn Stevens said inflation is close to the central bank’s target, adding to prospects policy makers may further lower rates. Today’s reduction was the first in 2 1/2 years. New Zealand’s dollar and Australia’s currency also slid after data showed manufacturing slowed in China, the two nations’ major trading partner.
“The Aussie is lower after the RBA rate cut,” said Lee Wai Tuck, a currency strategist in Singapore at Forecast Pte. “It seems like they have opened the door for more rate cuts because they say that inflation is likely to be close to target. I think there’s a possibility there may be another cut in December.”
Australia’s dollar slid 1.8 percent to $1.0338 at 12:37 p.m. in New York and touched $1.0271, the lowest level since Oct. 21. It weakened 1.7 percent to 80.92 yen after rallying 1.5 percent yesterday. The currency fell 0.4 percent to NZ$1.3001.
The New Zealand dollar rose earlier as much as 0.5 percent before dropping 1.5 percent to 79.48 U.S. cents. The currency declined 1.4 percent to 62.21 yen.
The RBA’s Stevens and his board reduced the developed world’s highest borrowing costs by a quarter-percentage point to 4.5 percent, the central bank said in a statement in Sydney today. Sixteen of 27 economists surveyed by Bloomberg News predicted the move; the rest forecast no change.
“Recent information suggests the subdued demand conditions and the high exchange rate have contained inflation,” Stevens said in the statement. “With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2 percent to 3 percent inflation over time.”
The MSCI World Index of stocks dropped 3.5 percent on renewed concern Europe’s debt crisis will worsen. Fitch Ratings said Greek Prime Minister George Papandreou’s pledge to put the European Union’s latest crisis accord to a referendum threatens financial stability in the euro region.
The China Federation of Logistics and Purchasing said today its Purchasing Managers’ Index fell to 50.4 from 51.2 in September. That compared with the median estimate of 51.8 in a Bloomberg survey of economists.
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