Aussie Set for Weekly Drop as Goldman Cuts Forecast; Bonds Rally

The Australian dollar headed for a weekly drop versus currencies of the U.S. and Japan on concern China’s economy is slowing and before Crimea votes this weekend on whether to leave Ukraine to join Russia.

Goldman Sachs Group Inc. cut forecasts for the Aussie, saying its weakening trend is one of their “strongest conviction views” in the next three to six months. Australia’s bonds rose, sending the benchmark 10-year yield down from a one-month high, and Asian stocks extended their sharpest drop in nine months this week as tensions in Ukraine persisted.

“The way the vote is going to go is that the referendum will” probably pass, said Joseph Capurso, Sydney-based currency strategist at Commonwealth Bank of Australia. “So far, we haven’t had a lot of shooting and the like at each other, but if Crimea is just about to join Russia, then you might get that. Aussie will probably go below 88-89” U.S. cents, he said.

The Australian dollar fell 0.3 percent to 90.05 U.S. cents at 5:15 p.m. in Sydney from yesterday, when it rose 0.5 percent. It dropped 0.6 percent to 91.44 yen. For the week, the Aussie is down 0.7 percent against the greenback and 2.4 percent versus the yen.

Australian government bonds rose, with the 10-year yield dropping 13 basis points, or 0.13 percentage point, to 4.04 percent. It reached 4.25 percent yesterday, the highest since Feb. 13.

The Aussie rallied yesterday after a government report showed employers added more than three times the jobs economists estimated in February. The Reserve Bank of Australia releases on March 18 the minutes of its March meeting where policy makers held rates unchanged at 2.5 percent. The RBA cut borrowing costs by 2.25 percentage points from late 2011 through August last year to a record low.

Goldman Bearish

“The guts of the data releases are not as positive as the headlines suggest,” Goldman Sachs strategists Robin Brooks and Fiona Lake, wrote in a report dated yesterday. “With the weakness under the hood and the ongoing influence of the turn in the investment cycle, we still think that there is a good chance of an RBA cut over the summer.”

“This would provide a catalyst for further AUD weakness as the Australian-US rate differential resumes it narrowing trend,” they wrote.

Goldman Sachs cut the Aussie dollar’s 12-month forecast to 80 U.S. cents from 85.

Shares Declining

The MSCI Asia Pacific Index of shares sank 2 percent, extending its weekly drop to 3.8 percent, the most since the five-days ended May 18, 2012.

The U.S. and Germany stepped up pressure on Russia to back down from plans to annex Crimea from Ukraine, warning they’ll exact an economic toll if Russia goes ahead.

“Australia is starting a very quiet period for data releases, leaving AUD watching offshore events,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, wrote in a report today. “Market-negative possibilities include the West imposing tougher economic sanctions on Russia which could respond by disrupting natural gas supply to most of the Ukraine and in turn to parts of the EU.”

China’s National Bureau of Statistics data showed yesterday industrial output and retail sales in the nation grew less than economists forecast in January and February. China is the biggest trading partner for both Australia and New Zealand.

New Zealand’s Performance of Manufacturing Index fell to 56.2 in February from a revised 56.3 the prior month, Bank of New Zealand and Business New Zealand reported. A figure above 50 indicates an expansion.

The New Zealand dollar slid 0.1 percent to 85.35 U.S. cents from yesterday, when it reached the highest since April 12 at 86.06.

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