Aussie Falls as Business Confidence Deteriorates; Kiwi Declines

Australia’s dollar weakened against a majority of its 16 peers after a private report showed local business confidence deteriorated, fanning expectations the Reserve Bank will cut borrowing costs to bolster growth.

The Aussie held a decline against the greenback before U.S. data that may show retail sales climbed, adding to the case for the Federal Reserve to taper stimulus that tends to weaken the greenback. The extra yield that investors get by holding Australia’s government bonds instead of other sovereign debt has fallen from an 11-month high. New Zealand’s dollar slid against the most of its counterparts after completing its biggest weekly climb against the U.S. currency since 2011.

“The RBA themselves are pretty keen still for the currency to go lower,” Mansoor Mohi-uddin, the Singapore-based head of currency strategy at UBS AG, said in an interview with Bloomberg Television. “The data suggest a lower currency is needed to restore growth in Australia’s economy.”

Australia’s currency lost 0.1 percent to 91.42 U.S. cents as of 4:45 p.m. in Sydney after dropping 0.6 percent yesterday. The kiwi dollar fell 0.1 percent to 80.01 U.S. cents following a 0.3 percent decline. The Aussie may slide to 80 cents in the next 12 months, Mohi-uddin forecast.

New Zealand’s two-year swap rate reached 3.44 percent, the highest level since August 2011.

National Australia Bank Ltd.’s index of business confidence fell to minus 3 in July, the lowest since November, from zero in June, the Melbourne-based lender said today.

The yield on Australia’s three-year note rose four basis points, or 0.04 percentage point, to 2.58 percent today. It touched 2.43 percent last week, the lowest since Oct. 16.

Yield Advantage

The U.S. Commerce Department is likely to say today that retail sales increased 0.3 percent last month from June, when they climbed 0.4 percent, the median forecast of economists surveyed by Bloomberg News shows. The Fed will probably start to taper its $85 billion monthly bond purchases in September, according to a July 18-22 poll of economists.

The yield spread between Australia’s government bonds and other nations’ sovereign debt has declined to 1.61 percentage points from 2.07 points on March 25, which was the highest since April 2012, Bank of America Merrill Lynch indexes show.

Cut Again

The RBA reduced the overnight cash-rate target by a quarter percentage point to a record-low 2.5 percent on Aug. 6, extending its rate cuts from 4.75 percent in October 2011. Traders see a 65 percent chance that the central bank will cut the rate at least once more by the year-end, according to data compiled by Bloomberg on overnight-index swaps.

Both the Aussie and kiwi posted their biggest weekly gain since December 2011 on Aug. 9 after Chinese reports for July showed imports climbed 10.9 percent and industrial production expanded at the fastest pace this year. China is Australia’s largest export market and the second biggest for New Zealand.

“We still see some more upside” to the Australian dollar,’’ said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “At some point, we’ll get a chance to sell the Australian dollar on the basis of the outlook for the medium term, but I don’t think right now is that point.”

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