Australian Dollar Weakens as Retail Sales Fall, Before RBA Meets

Australia’s dollar fell after data showed retail sales unexpectedly contracted in March, adding to speculation a weakening economy will prompt the central bank to cut interest rates to a record low.

The so-called Aussie dropped to its weakest since October 2009 versus New Zealand’s dollar amid prospects monetary policy will diverge in the two nations over the coming year. There is a 53 percent chance that the Reserve Bank will lower its 3 benchmark rate tomorrow, according to Bloomberg calculations based on overnight-index swap rates.

“The Aussie will remain heavy and probably gravitate toward the downside following the retail sales number,” said Jim Vrondas, the Sydney-based chief currency and payment strategist at OzForex Ltd. “The RBA is unlikely to cut tomorrow, though they’ll probably maintain an easing bias. That should give the Aussie some support.”

The Australian dollar declined 0.5 percent to $1.0271 as of 5:4 p.m. in Sydney. It fell 0.1 percent to 102.03 yen. The Aussie slid to as low as NZ$1.2016, the weakest since October 2009, before buying NZ$1.2034, 0.5 percent lower than the May 3 close. New Zealand’s dollar rose 0.1 percent to 85.41 U.S. cents. The currency advanced 0.5 percent to 84.85 yen.

Policy Rates

Australia’s retail sales fell 0.4 percent in March, compared with the median forecast of economists for a 0.1 percent gain, data from the statistics bureau showed today.

RBA Governor Glenn Stevens will keep rates unchanged tomorrow, according to the median forecast of economists surveyed by Bloomberg News. Policy makers have left borrowing costs at 3 percent since December, when they made the last cut.

“Most economists are predicting no change, but they agree the odds have increased and many now say it’s another line ball decision,” wrote Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. “An important consideration in assessing the balance of risks is the resilience of the Aussie notwithstanding the weaker commodity prices and increased speculation about potential rate cuts.”

The currency will probably fall toward NZ$1.15 over the next six months, he wrote.

Swaps traders are betting on 57 basis points of reductions over 12 months, according to a Credit Suisse Group AG index.

The nation’s three-year bond yield rose five basis points, or 0.05 percentage point, to 2.58 percent. The 10-year rate gained eight basis points to 3.12 percent.

Before it's here, it's on the Bloomberg Terminal.