Aussie Touches 2-Week Low, Yields Drop as U.S. Shutdown Looms

The Australian dollar touched a two-week low as investors sought safer assets amid concern a U.S. Congressional deadlock would lead to a government shutdown in the world’s biggest economy.

The Aussie weakened versus most peers after a private gauge of manufacturing in China indicated slower-than-expected expansion and as Asian stocks tumbled. Australia’s currency was set for a monthly advance versus most of its major counterparts before Reserve Bank of Australia officials meet tomorrow, with economists forecasting they will keep borrowing costs unchanged. New Zealand’s currency held a gain this month as investors boosted bullish bets on it to the highest since May.

U.S. lawmakers “tend to come to an agreement before too much damage is done, however it does show just how dysfunctional the government is,” said Derek Mumford, a director at Rochford Capital, a foreign-exchange risk-management company in Sydney. “There’s plenty of uncertainty in the world and in that kind of situation, risk assets, which the Aussie is considered one of, do tend to get sold.”

The Australian dollar fell to 92.81 U.S. cents, the least since Sept. 16, before trading 0.1 percent lower at 93.05 cents as of 4:40 p.m. in Sydney. The Aussie has risen 4.6 percent since Aug. 30 and is up 1.8 percent this quarter.

New Zealand’s kiwi was little changed at 82.70 U.S. cents, holding its monthly gain at 7 percent. It has advanced 6.9 percent since June 28, the best performer among the U.S. dollar’s major counterparts.

The MSCI Asia Pacific Index of stocks slid 1.5 percent, poised for its biggest decline since Aug. 28.

Yields Drop

Australia’s 10-year government bond yield slid five basis points to 3.81 percent and earlier reached 3.76 percent, the least since Aug. 13. The yield on debt due in three years dropped to 2.67 percent, a level unseen since Aug. 15. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell three basis points to 3.42 percent.

The U.S. Senate will reconvene today, when it is expected to reject a House of Representatives plan passed yesterday to delay and limit President Barack Obama’s Affordable Care Act. In response, the House would add “another provision” to the spending measure and send it back to the Senate, said Representative Kevin McCarthy, the top House Republican vote counter.

In China, a manufacturing purchasing managers’ index by HSBC Holdings Plc and Markit Economics was at 50.2 this month compared with a 51.2 preliminary reading on Sept. 23 and 50.1 in August. A reading greater than 50 signals expansion. China is Australia’s and New Zealand’s biggest trading partner.

Rate Bets

RBA Governor Glenn Stevens and his board will keep the cash rate at a record-low 2.5 percent, according to all 33 economists surveyed by Bloomberg News.

Interest-rate swaps data compiled by Bloomberg show traders see a 52 percent chance policy makers will refrain from further reductions by the end of 2013, while seeing a 58 percent probability they will cut the benchmark to 2.25 percent or lower by February.

“The RBA will eventually come back with another rate cut but October was always a remote chance after the August cut,” Rob Henderson, the Sydney-based chief economist at National Australia Bank Ltd., wrote in a report today.

Commodity Futures Trading Commission data showed the difference in the number of wagers by hedge funds and other large speculators on a gain in the kiwi compared with those on a drop, or net longs, climbed to 8,055 in the week ended Sept. 24. That’s the most since the period through May 28.

The kiwi “could fall to 0.8160 this week, but as long as that level holds, then a resumption of September’s rally to above 0.8400 is likely,” Imre Speizer, an Auckland-based market strategist at Westpac Banking Corp., wrote in an e-mailed note to clients today. The 84-cent level was last seen on Sept. 20, when the currency peaked at 84.01 cents.

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