March 15 (Bloomberg) -- The Australian and New Zealand dollars erased earlier gains after Moody’s Investors Service said the U.S. and U.K. have moved closer to losing their AAA credit ratings, damping demand for higher-yielding assets.
The Australian and New Zealand currencies also pared their advance against the yen as Asian stocks fell, losing their initial advance. The Australian dollar earlier rose to its highest in more than seven weeks against the yen and greenback as concerns eased that Greece might default.
“Reports about rating companies continue to have an impact on the market,” said Toshiya Yamauchi, manager of currency margin trading at Ueda Harlow Ltd. in Tokyo. “When the market runs out of positives, growth-related currencies such as the Aussie tend to lose momentum.”
Australia’s dollar traded at 91.38 U.S. cents as of 4:03 p.m. in Sydney from 91.52 cents in New York on March 12. It earlier touched 92.01 cents, the highest since Jan. 20. The currency was at 82.80 yen from 82.88 yen. It reached 83.61 yen, matching the strongest since Jan. 21.
New Zealand’s currency fetched 70.21 U.S. cents from 70.18 cents, after reaching 70.62 cents earlier today. It traded at 63.62 yen from 63.53 yen.
The MSCI Asia Pacific Index of regional shares fell 0.4 percent after gaining as much as 0.4 percent. The Shanghai Composite Index dropped 1.2 percent.
The U.S. and U.K. governments must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said.
Moody’s Ratings
Under the ratings company’s baseline scenario the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said in a report.
“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said in the report. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
Demand for the Australian currency also waned amid concern the global economy hasn’t recovered enough to let Reserve Bank of Australia and other central banks raise interest rates.
Industrial production in the U.S. was unchanged last month after climbing 0.9 percent in January, according to the median estimate of economists in a Bloomberg News survey. The Fed is scheduled to release the data today.
The Federal Open Market Committee is forecast to keep its benchmark interest rate unchanged on March 16, according to all 88 economists in a Bloomberg News survey.
RBA Rates
“Despite the fact we had positive news out of the weekend on Greece, we are not in a situation where the Aussie is set to shoot above 92” U.S. cents, said Robert Rennie, Sydney-based head of currency research at Westpac Banking Corp. “We still expect the RBA to move in May, but we just expect them to leave rates unchanged in April.”
Benchmark interest rates are 4 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South- Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Greece may get a 55 billion euro ($75.6 billion) bailout from the European Union, the Vienna-based Kurier newspaper reported last week, without saying where it got the information.
EU finance ministers will discuss in meetings beginning today whether any Greek bailout should be funded by issuing EU bonds guaranteed by euro-region governments, Bloomberg News was told by three people briefed on preparations for the talks.
“In terms of the global front, I think things are looking better and risk taking is looking better,” said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase in Sydney. “Overall, the Aussie is looking better. The Kiwi is probably looking as strong as the Aussie.”
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
