Aussie Touches 3-Year Low on China Data, Fed; N.Z. Yields Surge
Australia’s dollar slid to the lowest in almost three years after a gauge of Chinese manufacturing contracted and the Federal Reserve signaled an exit from monetary easing. New Zealand’s bond yields surged the most since the collapse of Lehman Brothers Holdings Inc.
The Aussie slid for a fifth day, following the biggest decline since November 2011 yesterday, after Fed Chairman Ben S. Bernanke signaled the central bank could reduce monetary stimulus that tends to weaken the greenback. New Zealand’s dollar dropped for a fifth day after data showed the nation’s economic growth slowed more than economists forecast.
“The link between the China growth story and the Aussie dollar remains crucial,” said Michael Judge, a Sydney-based dealer at OZForex Pty Ltd., an online foreign-exchange company. “We all know the only way interest rates are heading in this country at the moment is south, and obviously weakening China growth doesn’t help that prognosis.”
The Australian dollar fell 0.7 percent to 92.29 U.S. cents as of 4:55 p.m. in Sydney from yesterday, when it tumbled 2 percent. It earlier touched 92.25, the lowest since Sept. 10, 2010. The New Zealand dollar weakened 0.8 percent to 78.33 U.S. cents after sliding 1.1 percent yesterday.
The yield on Australia’s benchmark 10-year government bond rose as much as 23 basis points to 3.65 percent, the highest since March 15. The extra yield it offers over 10-year U.S. debt yesterday narrowed to 107 basis points, or 1.07 percentage point, the least since November 2008. Commonwealth Bank of Australia (CBA) predicts the gap could shrink to the lowest since 2001.
China’s manufacturing Purchasing Managers’ Index dropped to 48.3 in June from 49.2 the prior month, according to HSBC Holdings Plc and Markit Economics. The median analyst estimate in a Bloomberg News survey was for a reading of 49.1, and levels below 50 signal contraction.
Economists this month raised their forecasts for the possibility of an Australian recession in the next 12 months to 10 percent, from 5 percent in May, in a Bloomberg survey released yesterday.
The Reserve Bank of Australia reitereated it has scope to cut interest rates further, according to minutes from this month’s meeting that were released this week. It left the benchmark rate at a record low 2.75 percent at the gathering.
Swaps markets are pricing in 29 basis points of RBA cuts over the coming year, according to a Credit Suisse Group AG indexes. Another index is signaling 17 basis points of rate increases in the U.S.
The Fed raised its growth forecasts for next year to a range of 3 percent to 3.5 percent and reduced the outlook for unemployment to as low as 6.5 percent, after leaving the monthly pace of bond purchases under quantitative easing unchanged at $85 billion yesterday.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said in a press conference in Washington.
“The Fed’s explicitness overnight we think will see the markets refocus on policy dichotomies amongst global central banks,” Emmanuel Ng, a strategist at Oversea-Chinese Banking Corp. in Singapore, wrote in a report today. Downside risks for the Australian currency “may have become more entrenched in the near term, especially with the latest RBA meeting minutes essentially on the opposite end of the spectrum relative to the Fed.”
Australia’s dollar has fallen almost 12 percent over the past three months, making it the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar is the second-biggest decliner with a a 4.5 percent loss.
“It was a massive move overnight,” Laura Fitzsimmons, a Sydney-based vice president for futures and options at JPMorgan Chase & Co., said in a Bloomberg Television interview of the Aussie’s plunge in New York. “We could see that move continue, despite technical indicators looking like it’s well oversold at this stage.”
The Australian dollar’s relative strength index versus the greenback slid to 29 today, a level that some traders see as a sign that an asset’s price has fallen too rapidly and is poised to reverse course. The New Zealand dollar’s RSI against its U.S. counterpart was 36.
New Zealand’s dollar sank after data showed the economy grew less that forecast in the first quarter. Gross domestic product expanded 0.3 percent in the first quarter from the period before, slowing from a 1.5 percent pace in the previous three months, Statistics New Zealand said in a report today. The median forecast of economists surveyed by Bloomberg News was for a 0.5 percent expansion.
“The New Zealand data has been a lot better than Australian data, and there was a general perception that the GDP might well support that a little bit,” said Sam Tuck, a senior foreign-exchange manager at ANZ Bank New Zealand Ltd. in Auckland. “The lack of support from GDP meant the New Zealand dollar had a bit of catching up to do on the big U.S. dollar move.”
New Zealand’s 10-year bond yield surged 30 basis points to 4.09 percent. It was the steepest advance since October 2008 and the highest close for the yield since April 2012.
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