Aussie Dollar Drops to Three-Week Low on Rate Cut as Yen Slides

The Australian dollar slid to a three-week low against its U.S. counterpart after the Reserve Bank of Australia unexpectedly lowered its benchmark interest rate to the least since 2009.
The Aussie dropped against all of its 16 most-traded peers as a global slowdown drags on commodity prices that have helped drive 21 years of growth. The yen fell amid speculation Japan may act to weaken the currency. The euro rose as Spanish and Italian bonds advanced before an Oct. 4 meeting of the European Central Bank. South Africa’s rand gained versus the U.S. dollar for the first time in three days.
“The rate cut is clearly a surprise,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said in a telephone interview. “The Aussie dollar is going to be quite soft going forward. There could be a move toward parity if we start to see deterioration in the stock markets globally.”
Australia’s dollar fell 0.5 percent to $1.0311 at 9:12 a.m. New York time, after touching $1.0292, the lowest level since Sept. 7. The yen weakened 0.5 percent to 100.97 per euro and lost 0.2 percent to 78.12 per dollar. The 17-nation euro added 0.3 percent to $1.2924.
RBA Governor Glenn Stevens and his board lowered the overnight cash-rate target by a quarter-percentage point to 3.25 percent, the central bank said in a statement in Sydney today.

Swaps Indicator

The decision to end a three-month pause was predicted by nine of 28 economists surveyed by Bloomberg News. Swaps markets indicated before the RBA announcement that there was a more than 70 percent chance of a reduction in the cash-rate target, according to data compiled by Bloomberg.
Lower interest rates reduce the yield on a nation’s fixed- income assets, making the currency less attractive to investors from overseas.
New Zealand’s dollar gained versus most major currencies after a report showed commodity export prices advanced last month, buoying the currency. ANZ National Bank Ltd.’s price index rose 3.5 percent to 263 in September, its highest level since April.
The currency, nicknamed the kiwi, rose 0.5 percent to 83.14 U.S. cents. The kiwi strengthened 0.6 percent to 64.96 yen.
South Africa’s rand strengthened as foreign buying of the country’s government bonds increased after they were included in a key index.
The rand advanced as much as 0.7 percent before trading 0.2 percent stronger at 8.3687 per dollar. Yields on 6.75 percent notes due 2021 fell nine basis points to 6.57 percent.

Ruble Falls

The Russian ruble decreased against the euro amid concerns that declining commodity prices will pare investor appetite for the currency of the world’s biggest energy exporter. The ruble fell 0.3 percent to 40.1977 per euro.
The yen slid against all of its 16 major peers except the Australian dollar after Japan’s new Finance Minister Koriki Jojima said the government will “take bold actions against the currency’s excessive moves, if necessary.”
His comments echoed those used by predecessor Jun Azumi, signaling that intervention in currency markets remains an option.
“The new finance minister was pretty clear that the rhetoric hasn’t changed, even though the post has,” said Chris Walker, currency strategist at UBS AG (UBSN) in London. “We’re at levels where previously they were intervening. Once you get around 80, people think you might get a further bout.”
Japan hasn’t intervened in the currency market since November, according to the finance ministry.

Gains Limited

Gains in the euro were limited before data tomorrow that economists in a Bloomberg survey said will show European retail sales fell 0.1 percent in August from July, when they slipped 0.2 percent. Figures yesterday showed unemployment in the euro area climbed to a record 11.4 percent in August.
The Frankfurt-based ECB will keep its main refinancing rate unchanged at a record low 0.75 percent this week and will reduce it by the end of the year, a separate Bloomberg survey of economists showed.
Spain’s Economy Minister Luis de Guindos said the nation is pressing on with its analysis of whether to seek a bailout, moving beyond his call last week that the European Union needed to provide more guidance on conditions.
“If Spain decides to ask for a bailout, that’s a positive factor for the euro,” said Noriaki Murao, New York-based managing director of the marketing group at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “That could reduce risks of a euro breakup.”
The euro lost 2.9 percent over the past six months, the biggest drop after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar rose 0.4 percent and the yen jumped 6.1 percent. The Aussie depreciated 0.8 percent, the indexes showed.

Source: Bloomberg