BLBG: Australian, New Zealand Dollars Fall Before Central Bank Policy Meetings
The Australian and New Zealand dollars fell, snapping three-day gains, on speculation policy makers meeting this week will signal they are in no hurry to increase interest rates.
Australia’s currency also dropped from near a two-week high versus the greenback on concern a sovereign-debt crisis in Europe will damp demand for higher-yielding assets as the region’s finance ministers meet today in Brussels. New Zealand’s dollar slipped against most of its major counterparts as a government report showed the budget cash deficit was wider than earlier forecast.
“Kiwi and Aussie should drift lower into the rates decisions later this week,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Attention may shift back to Europe and the evolving sovereign- debt crisis there. There’s still bubbling concerns about Portugal and to a lesser extent Spain.”
Australia’s dollar fell to 98.81 U.S. cents as of 4:55 p.m. in Sydney from 99.31 cents in New York on Dec. 3 when it climbed to 99.39 cents, the strongest since Nov. 22. The so-called Aussie was 81.92 yen from 81.97. New Zealand’s dollar declined 0.3 percent to 76.34 cents, and bought 63.29 yen from 63.22 yen.
Reserve Bank of Australia policy makers are projected to leave benchmark borrowing costs at 4.75 percent tomorrow, according to a Bloomberg News survey. New Zealand’s central bank will meet on Dec. 9 and keep its official cash rate at 3 percent, according to a separate survey.
Higher Rates
Higher rates in Australia and New Zealand, compared with as low as zero in the U.S. and Japan, attract investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.
Traders pared bets on rate increases in Australia after RBA Governor Glenn Stevens told lawmakers in testimony 10 days ago that “there’s unlikely to be anything from us imminently” on borrowing costs. The central bank will boost rates by 21 basis points over the next 12 months, according to a Credit Suisse AG index based on swaps, down from 37 basis points on Nov. 25.
The Australian dollar also weakened amid signs the domestic economy is slowing.
Commonwealth Bank of Australia cut its wheat exports forecast after rains and floods swept the nation’s east coast and authorities warned of crop damage. A government report on Dec. 1 showed the economy expanded 0.2 percent in the third quarter from the previous period, the worst performance since a contraction at the end of 2008.
‘Sharply Lower’
“With floods ravishing New South Wales, farm output that supported Q3 GDP is likely to be revised sharply lower,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. That, along with slowing retail sales “should make the RBA sound more cautious at its policy meeting this week,” he said.
Futures traders decreased bets the Australian dollar will gain against the greenback, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 26,643 on Nov. 30, the lowest since July.
New Zealand’s cash deficit totaled NZ$7.45 billion ($5.7 billion) in the four months ended Oct. 31, or NZ$798 million more than forecast in May’s budget, the Treasury said in a statement today. Household spending was “conservative” last month and businesses are reluctant to borrow or invest, the department said in a separate report on its website.
“Lower consumption, a weaker global outlook and the fiscal impacts of the Canterbury earthquake will mean slightly lower growth and slightly higher deficits in the short term,” Finance Minister Bill English said in a statement today. The size of the deficit “reinforces the need for ongoing discipline in government spending,” he said.
Australia’s 10-year bond futures contract for December delivery climbed to 94.57 on the Sydney Futures Exchange from 94.51 last week. The implied yield slid seven basis points to 5.43 percent.
To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net
