Aussie Set for 5-Month Drop as U.S. Growth Buoys Taper Prospects

Australia’s dollar is set to close out its longest monthly losing streak in more than four years, as U.S. growth added to the case for a reduction in monetary stimulus that’s boosted asset prices round the world.

The Aussie pared its slide versus the greenback as technical indicators signal the currency’s decline may have been too rapid. It stayed lower versus most major peers this week after data yesterday showed the U.S. economy expanded more than forecast last quarter, boosting bets the Federal Reserve will decrease bond buying next month. New Zealand’s currency held a monthly decline after building permits dropped.

“A lot of the underperformance in the Aussie and the kiwi has been a consequence of a stronger U.S. dollar against some of the higher-yielding currencies,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “There’s been no indication from the Fed or recent data to suggest that tapering in September is off the cards, so I think we remain on track to see that.”

The Australian dollar added 0.1 percent to 89.40 U.S. cents as of 4:43 p.m. in Sydney, paring its decline in August to 0.5 percent, a fifth-straight monthly drop that’s the longest since the period through November 2008. The local dollar is down 1 percent this week.

New Zealand’s kiwi dollar climbed 0.1 percent to 77.81 U.S. cents and has fallen 0.3 percent this week. The currency has dipped 2.5 percent since July 31.

Aussie Bonds

Australia’s 10-year government bond yield fell two basis points, or 0.02 percentage point, to 3.9 percent. The rate on sovereign notes due in three years fell two basis points to 2.7 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was unchanged at 3.41 percent.

U.S. gross domestic product rose at a 2.5 percent annualized rate in the three months through June, up from an initial estimate of 1.7 percent, Commerce Department figures showed yesterday. The median forecast of economists in a Bloomberg News survey projected a 2.2 percent gain.

Fed policy makers are debating whether the U.S. economy is strong enough to let them pare monthly purchases of $85 billion in Treasuries and mortgage debt. Officials will reduce the amount at their next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.

Technical Rebound

Australia’s currency halted a three-day loss versus its U.S. counterpart after its 14-day relative strength index dropped to 38.3 yesterday, toward the 30 level that some traders see as a sign an asset’s decline may have been too much, too fast and due to reverse course.

“The Aussie is seeing a short-term rebound as it hits support around 89.50,” said Desmond Chua, a market analyst at CMC Markets in Singapore, referring to a level where there may be orders to buy. “But fundamentals still point to a lower currency.”

The Aussie, which dropped to three-year low of 88.48 cents on Aug. 5, faces losing support from Asia’s central banks that are draining foreign reserves to defend their own currencies. International reserves of India and Indonesia have fallen to the least since 2010, amid a decline to a record for the rupee and a slide to the weakest since 2009 for the rupiah.

Statistics New Zealand said today permits for dwellings in the South Pacific nation declined 0.8 percent in July following a 4.3 percent drop in the previous month. The median projection among analysts surveyed by Bloomberg was for a 1.3 percent advance.

RBA, Elections

The Reserve Bank of Australia is expected to leave its benchmark at a record low at its next policy meeting on Sept. 3, interest-rate swaps data compiled by Bloomberg show.

The central bank meeting precedes the release of second-quarter gross domestic product figures on Sept. 4 and elections on Sept. 7. Tony Abbott’s Liberal-National coalition leads Prime Minister Kevin Rudd’s Labor party among voters surveyed in a Newspoll published today in the Australian newspaper.

“These domestic events should prove less powerful drivers than developments abroad,” Citigroup Inc. strategists including Josh O’Byrne wrote in a report yesterday. “We continue to believe that AUD will be vulnerable in the face of widespread risk reduction.”

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