Aussie Dollar Gains, Paring Biggest Annual Slide Since 2008

Australia’s dollar rose, paring its biggest annual slide since 2008, as investors eased bets on further declines in the currency, which has trailed only the yen as the worst performer among major peers this year.

The Aussie has dropped against nine of the Group of 10 currency pairs this year, recording the biggest declines against the Danish krone, euro and Swiss franc. Private sector credit expanded at a slower pace than forecast last month, according to Reserve Bank data released today. Central bank Governor Glenn Stevens has indicated the currency needs to decline a further 5 percent given the economic outlook. A report tomorrow is forecast to show slower manufacturing growth in China, Australia’s largest trading partner.

“The Aussie may go down to the 85 cent target that Glenn Stevens has talked about, but I don’t see it any lower than that,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “When the market starts to realize that they’re not going to see cuts coming through in Aussie rates, then the currency may well go back up again.”

The Australian currency rose 0.3 percent to 89.32 U.S. cents at 4:26 p.m. in Sydney and has dropped 1.9 percent so far this month and 14 percent this year. It rose 0.2 percent to 93.78 yen and has gained 4 percent versus the yen in 2013.

New Zealand’s dollar strengthened 0.2 percent to 82.20 U.S. cents today and was little changed at 86.32 yen. The kiwi has weakened 0.8 percent against the dollar this year while rising 20 percent versus the yen.

Lending Growth

“The fall in the Australian dollar seems to have found some respite amongst the holiday trading lull,” David de Ferranti, a Sydney-based market analyst at FXCM Inc., a currency broking group, wrote in an e-mailed note. “Sellers may be left wanting for a catalyst to send the Aussie on its next leg lower over the week ahead and are looking to book profits on short positions.”

Credit to Australian businesses and consumers rose 0.3 percent in November from the previous month, compared with the forecast for a 0.4 percent gain in a Bloomberg News survey. Lending to companies fell 0.1 percent from October, the RBA report released today showed.

Preferable Level

Central bank Governor Stevens said this month that “it’s probably more preferable” to support the economy via a weaker currency than with further rate cuts. An exchange rate of 85 U.S. cents is “closer to the mark” than 95 cents, he said in an interview with the Australian Financial Review.

The currency will probably weaken to 88 cents by the end of next year, according to the median of forecasts compiled by Bloomberg. There’s a 72 percent chance of it touching the 85 cent level by then, options data indicate.

The Aussie may drop toward 85 before mid-February and then climb back above 90 cents later in the year as investors realize that the central bank won’t be cutting rates from a record-low 2.5 percent, Averill said. “They don’t actually have the monetary policy tools available to them to drive the Aussie down,” he said.

There’s a greater than 70 percent chance that the benchmark rate will be unchanged by June, interest-rate swaps data compiled by Bloomberg show.

Chinese manufacturing growth slowed in December, analysts polled by Bloomberg predict. The Purchasing Managers’ Index was 51.2 this month from 51.4 in November, according to the survey median for data due tomorrow. Numbers above 50 signal expansion.

Australia’s dollar has dropped 13 percent this year, the steepest decline after the yen among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The kiwi has climbed 2.4 percent.

The three-year yield in Australia fell three basis points, or 0.03 percentage point, today to 2.95 percent. It has risen 28 basis points this year, ending back-to-back annual declines.

New Zealand’s two-year swap rate, a fixed payment made to receive a floating rate, was little changed at 3.85 percent and is up 1.18 percentage points this year.

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