Aussie Set for Worst Quarter Since ’08 on Fed; Kiwi Dollar Gains

The Australian dollar headed for its biggest quarterly drop since 2008 as prospects for reduced monetary stimulus from the Federal Reserve trimmed demand for the South Pacific nation’s assets.

New Zealand’s dollar rallied along with Asian stocks. Losses in the Aussie were limited as a technical indicator showed its recent drop may have been excessive. Australia’s bond yields fell to a one-week low as traders see a 27 percent chance the Reserve Bank of Australia will cut interest rates when it meets July 2. U.S. data today may show improvement in consumer sentiment and an expansion business activity.

“The prospect of Fed tapering continues to weigh on the Aussie as the U.S. dollar is bought back,” said Takuya Kawabata, an analyst at Tokyo-based Research Institute Ltd., a unit of Japan’s largest currency margin company. “While expectation for the RBA easing has been pared back somewhat, Aussie dollar will struggle to rise until we see more stability in China.”

The Australian dollar was little changed at 92.77 U.S. cents as of 4:18 p.m. in Sydney. It has lost 3.1 percent this month, and 11 percent this quarter.

New Zealand’s dollar rose 0.2 percent to 78.14 U.S. cents. The kiwi weakened 1.7 percent this month and 6.7 percent this quarter against the greenback.

The yield on Australia’s 10-year government bond fell five basis points to 3.77 percent, after earlier touching 3.74 percent, the lowest since June 21. The three-year rate dropped six basis points to 2.75 percent.

The MSCI Asia Pacific Index of shares surged 1.9 percent, trimming its monthly loss to about 3 percent. Stocks and growth-sensitive currencies like the Aussie have slid in June amid concern a cash crunch in China and prospects for reduced stimulus in the U.S. will damp global growth.

Consumer Sentiment

The Thomson Reuters/University of Michigan index of U.S. consumer sentiment was probably at 83 in June, compared with a prior reading of 82.7 for the month, according to the median estimate of economists in a Bloomberg News survey. It reached an almost six-year high of 84.5 reached in May.

The MNI Chicago Report’s business barometer fell to 55 in June from 58.7 the previous month, according to a separate poll, remaining above the 50 level that signals expansion.

Fed Chairman Ben S. Bernanke signaled on June 19 the U.S. central bank may “moderate” its $85 billion in monthly bond purchases, known as quantitative easing, later this year and end it mid-2014 if economic improvement continues.

Fed Prospect

New York Fed President William C. Dudley, who has a permanent vote on the central bank’s panel, said yesterday any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus, and that an increase in the benchmark interest rate is “very likely to be a long way off.”

Australia’s dollar has weakened 6.7 percent this year, the second-worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi has fallen 0.7 percent in the same period.

The Australian dollar’s 14-day relative strength index versus the greenback was at 34, near the 30 level some traders see as a sign an asset’s price may reverse direction.

Lending to businesses and consumers rose 0.3 percent in May from the previous month, RBA data showed today. That was in line with the median estimate of economists in a Bloomberg poll.

Interest rate swaps compiled by Bloomberg signal about an 86 percent chance the RBA will lower its key rate, already at a record low 2.75 percent, by its December meeting. The central bank says it has scope to lower borrowing costs to spur expansions in the construction, services and manufacturing sectors, which have been contracting since at least March 2012.

NZ Permits

In New Zealand, building permits increased 1.3 percent to 1,818 in May, the most since April 2008, the statistics office in Wellington said today. That compared with a 3.9 percent decline predicted by economists in a Bloomberg survey.

Reserve Bank of New Zealand Deputy Governor Grant Spencer said yesterday it isn’t appropriate to raise interest rates at the moment and the central bank is “seriously considering” using other tools to curb a housing boom.

New Zealand’s two-year swap rate, a fixed payment made to receive a floating rate, slid three basis points to 3.17 percent.

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