Aussie Falls to 11-Month Low as Yield Premium Over U.S. Shrinks

Australia’s dollar fell to an 11-month low after the premium the nation’s bonds offer over U.S. debt shrank to the least in a year, sapping the allure of the currency as a higher-yielding asset.

The extra rate investors get by holding the South Pacific nation’s 10-year notes instead of similar-maturity Treasuries dropped to 1.27 percentage points yesterday, the lowest since June 2012. Yields on U.S. securities reached a two-month high this week amid speculation the Federal Reserve may consider tapering bond purchases as the economy improves.

“For the remainder of the week, the Aussie dollar will be quite heavy,” said Joseph Capurso, a Sydney-based foreign-exchange strategist at Commonwealth Bank of Australia, the nation’s biggest lender by market value. “The U.S. dollar will remain quite firm, I think U.S bond yields will continue to lift a bit further.”

The Australian dollar lost 0.3 percent to 98.63 U.S. cents as of 5:29 p.m. in Sydney after touching 98.52, lowest since June 12 last year. The currency extended its decline to an eighth day, the longest run of slides since August 2011. New Zealand’s currency was little changed at 81.90 U.S. cents.

The yield on Australia’s 10-year note gained three basis points, or 0.03 percentage point, to 3.27 percent today. Traders see about a 60 percent chance that the Reserve Bank of Australia will lower the benchmark rate within three months after cutting it to a record 2.75 percent on May 7, according to data compiled by Bloomberg on overnight-index swaps.

RBA Policy

The exchange rate has been “little changed at a historically high level over the past 18 months, which is unusual,” the central bank in a statement after reducing borrowing costs.

“The RBA is actually suggesting in its statement last week that the RBA cut rates because they’re a bit concerned about the currency strength,” Paul Mackel, the head of Asian currency research at HSBC Holdings Plc. in Hong Kong, said in an interview with Bloomberg Television. “The market hates that type of thing.”

The statistics bureau said today the nation’s wage index rose 0.7 percent in the first three months of this year from the fourth quarter. Economists in a Bloomberg News survey estimated a 0.8 percent increase.

The Aussie’s 14-day relative-strength index against the greenback dropped to 24 yesterday, the least in a year and below the 30 level that signals to some traders that a currency has slid too far, too rapidly and is poised for a reversal.

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