Aussie Drops on Bets RBA to Cut Rate Regardless of Fed Tapering

Australia’s dollar reversed earlier gains on speculation the Reserve Bank of Australia will cut interest rates even after a potential delay in the Federal Reserve’s plan to slow asset purchases.

The Aussie rose from an eight-week low against the greenback yesterday after Fed chairman nominee Janet Yellen said the economy must improve before monetary stimulus can be trimmed. The nation’s 10-year bond yields posted their steepest drop in three weeks. The RBA lowered its benchmark interest rate to a record 2.5 percent in August, from 4.75 percent in October 2011.

“There was a big knee-jerk reaction from Yellen’s comments yesterday, there was a big move on the upside so there’s now a big move on the downside,” Marc Chandler, chief currency strategist for Brown Brothers Harriman & Co. in New York, said in a phone interview. “The RBA will still have to cut rate.”

Australia’s dollar fell 0.7 percent to 92.96 U.S. cents as of 9:23 a.m. in New York from 93.60 yesterday, when it added 0.6 percent. Ten-year government bond yields declined seven basis points to 4.2 percent, after touching 4.3 percent yesterday, the most since March 2012.

The Australian dollar will finish the year at 93 U.S. cents, while the New Zealand dollar will end at 82 U.S. cents, according to median estimates of analysts compiled by Bloomberg.

The Aussie has fallen 7 percent in the past six months, the worst performance most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.