The Australian and New Zealand currencies stayed lower amid speculation U.S. data will weaken the case for the Federal Reserve to expand monetary easing that debases the dollar.
The so-called Aussie touched a one-week low after the extra yield on Australia’s 10-year government bonds over comparable Treasuries declined yesterday. Reports due today are forecast to show U.S. industrial production increased and regional manufacturing expanded. Demand for Australia’s currency was also tempered after a private survey showed the nation’s consumer confidence fell amid prospects the Reserve Bank will keep interest rates unchanged.
“Market participants are reducing bets that the Fed will do QE3,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo, referring to a third round of asset purchases known as quantitative easing. “Good U.S. data are pushing U.S. yields higher and supporting the dollar. That creates some downward pressure for the Aussie and kiwi.”
Australia’s dollar touched $1.0465, the lowest level since Aug. 3, before trading at $1.0475 at 4:09 p.m. in Sydney, down 0.1 percent from the close in New York yesterday. New Zealand’s dollar, known as the kiwi, was little changed at 80.52 U.S. cents following a 0.5 percent drop yesterday.
The MSCI Asia Pacific Index of shares fell 0.5 percent, sapping demand for higher-yielding currencies.
U.S. output at factories, mines and utilities probably rose 0.5 percent last month after gaining 0.4 percent in June, according the median estimate of economists in a Bloomberg News survey ahead of today’s data. Manufacturing in the New York region may have grown in August with the Fed Bank of New York’s general economic index at 7, a separate poll showed. Readings greater than zero signal expansion.
Yield Spread
The yield on 10-year government bonds in Australia climbed three basis points, or 0.03 percentage point, to 3.33 percent today. The rate spread to U.S. debt narrowed to 1.57 percentage points yesterday, the least since Aug.3.The sentiment index for August declined 2.5 percent to 96.6, a Westpac Banking Corp. (WBC) and Melbourne Institute survey taken Aug. 6-10 of 1,200 consumers showed today in Sydney. A number below 100 indicates pessimists outnumber optimists.
Reserve Bank of Australia Governor Glenn Stevens paused rate reductions at the past two meetings after lowering the benchmark by 1.25 percentage points from November to June to the current 3.5 percent to bolster parts of the economy struggling with a strong currency.
Lower Rates
“Today’s report provides some gentle support for the prospect that lower interest rates may be needed,” Bill Evans, Westpac’s chief economist, said in a statement. It was the sixth consecutive month the index registered below 100, a stretch Evans described as “unusual.”New Zealand’s dollar may extend a decline to a more than two-month low after descending from the top of its year-long contracting range, according to Bank of America Corp., citing technical analysis.
The currency had an “impulsive break” to 80.67 cents to the greenback that confirmed a top a turn lower, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy in New York at Bank of America Merrill Lynch, wrote yesterday in a research report. The kiwi may decline to as low as 74.89 U.S. cents, according to Curry, a level unseen since June 1.
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