Aussie Falls After China Manufacturing Data Disappoints

The Australian dollar fell, erasing earlier gains, after growth in Chinese manufacturing trailed economists’ estimates, damping trade prospects.

The so-called kiwi touched the highest since August 2011 against its Australian counterpart after Reserve Bank of New Zealand Governor Graeme Wheeler said the smaller nation needs to reduce the budget deficit or face higher interest rates. The bank kept its benchmark borrowing cost at 2.5 percent yesterday.

“Chinese manufacturing data was not a disastrous result but definitely weaker than what the market was looking for,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “It would certainly take the shine off of Aussie dollar.”

Australia’s dollar declined 0.3 percent to $1.0392 at 4:27 p.m. in Sydney, after rising as much as 0.2 percent. The so-called Aussie bought 95.78 yen and touched 95.84, the highest since August 2008. Australia’s currency dropped to NZ$1.2350, the lowest since August 2011, before trading at NZ$1.2352, 0.6 percent below yesterday’s close.

The yield on Australia’s benchmark 10-year bonds rose seven basis points, or 0.07 percentage point, to 3.52 percent. The rate has climbed 20 basis points this week.

The kiwi advanced 0.3 percent to 84.14 U.S. cents from yesterday, when it gained 0.4 percent. The currency reached 77.58 yen, the highest since August 2008, before trading at 77.55, up 0.8 percent from yesterday’s close. Two-year interest-rate swaps in New Zealand rose 2 1/2 basis points to 2.92 percent.

China Manufacturing

The Purchasing Managers’ Index for China’s manufacturing fell to 50.4 in January from 50.6 in the previous month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today. That compares with the median estimate of 51.0 from a Bloomberg News survey of economists.

A separate PMI of China manufacturing by HSBC Holdings Plc and Markit Economics rose to 52.3 last month from 51.5 in December. China is Australia’s biggest trading partner and New Zealand’s second-largest export market.

A gauge measuring Australian manufacturing dropped 4.1 points to 40.2 last month, the lowest level since June 2009, the Australian Industry Group said in a survey released today. The last reading above 50, the divide between expansion and contraction, was in February 2012.

Interest-rate swaps data compiled by Bloomberg show traders see a 27 percent chance the Reserve Bank of Australia will lower its benchmark rate by a quarter percentage point to 2.75 percent at its Feb. 5 meeting.

‘Prefer Kiwi’

“When we look at Aussie and kiwi, we prefer kiwi because of the monetary policy outlook” said Alvin Pontoh, an Asia-Pacific strategist at TD Securities Inc. in Singapore. “We think the RBA will hold rates next week, but at the same time leave the door open for further policy easing. The weakness of the Australia PMI, at a margin, adds to the case for bit more easing down the track.”

TD expects the Reserve Bank of New Zealand will raise interest rates in September.

UBS AG recommends selling the Aussie dollar versus its New Zealand counterpart, according to a research note today.

RBNZ Governor Wheeler said returning the country’s budget to surplus “will strengthen the economy’s resilience and create more fiscal room for responding to future shocks.” Failure to narrow the budget shortfall “means monetary policy has to be tighter and interest rates higher than otherwise.” He spoke in Christchurch today.

“The fact that Wheeler didn’t talk down the New Zealand dollar aggressively was very much welcomed by the markets,” said Westpac’s Cavenagh. “It was more of what he didn’t say rather than what he did say.”

Prime Minister John Key said this week the nation’s companies are hurt by the high exchange rate.

The New Zealand dollar has risen 1.4 percent in the past month according to Bloomberg Correlation-Weighted Currency Indexes. The Australian dollar has fallen 0.5 percent in the same period.

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