Australia s dollar dropped below parity with the greenback for the first time in five months as concern over a slowdown in the U. S. economy and the euro- region s debt crisis sapped demand for higher-yielding assets.
The Aussie dropped for a ninth day, heading for its longest losing streak since it was freely floated in 1983, as Asian stocks extended a global slump. New Zealand s dollar slid versus most major peers after volatility in foreign-exchange markets surged. The South Pacific currencies extended declines after data showed China s consumer prices rose by more than economists forecast, stoking concern the government will take more measures to cool growth.
We have maintained a more risk-aversive view, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. , Australia s second-largest lender. While the U. S. has been squabbling over the debt ceiling, its economy has slowed too, and the European sovereign crisis risks a recession in the region next year. None of that is good news for pro- cyclical currencies like the Aussie dollar and the kiwi.
Australia s dollar fell to as low as 99. 28 U. S. cents and traded at $1. 0057 as of 1:43 p. m. in Sydney from $1. 0187 in New York yesterday. It declined 2 percent to 77. 63 yen. New Zealand s dollar slid to as weak as 79. 66 U. S. cents, the lowest since May 25. The kiwi dropped 1. 9 percent to 62. 65 yen.
Stocks, Commodities Plunge
The MSCI Asia Pacific Index, which last week entered a so- called correction after falling more than 10 percent from its May peak, slumped 4. 1 percent today. The Standard & Poor s 500 Index of stocks retreated 6. 7 percent yesterday, with the gauge slumping 11 percent in three days, the most since November 2008. The Thomson Reuters/Jefferies CRB Commodity Price Index lost 2. 8 percent.
The JPMorgan Global FX Volatility Index reached 13. 19 yesterday, the highest since March 17.
China s consumer price index increased 6. 5 percent in July from a year earlier, the fastest since June 2008, the National Bureau of Statistics said. That was more than the 6. 4 percent median estimate in a Bloomberg News survey of economists. China is Australia s largest trading partner and New Zealand s second- largest export destination.
The inflation data reinforces fears of Chinese rate hikes in this rather fragile environment, said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. Aussie and the kiwi are the biggest losers.
The Aussie also fell as traders bet the Reserve Bank of Australia will cut the developed world s highest benchmark rate 173 basis points over 12 months, up from 131 basis points yesterday, according to a Credit Suisse Group AG index based on swaps.
Benchmark rates are 4. 75 percent in Australia, compared with as low as zero in the U. S. and Japan, attracting investors to the South Pacific nations higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Yields on Australia s 10-year debt decreased as much as 28 basis points, or 0. 28 percentage point, to 4. 34 percent, the lowest since April 2009. The three-year rate fell 29 basis points to 3. 56 percent.
Declines in the Aussie were limited on prospects Federal Reserve officials may prolong a pledge to maintain record monetary stimulus at a policy meeting today. Fed Chairman Ben S. Bernanke last month outlined policy options including additional asset purchases or strengthening the commitment to low interest rates after the first two rounds of so-called quantitative easing failed to keep the unemployment rate below 9 percent.
Fed policy makers are likely to embark on a third round of large-scale asset purchases, moving more decisively to secure the U. S. recovery, Harvard University economist Kenneth Rogoff said in an interview today on Bloomberg Television.
Investors are now looking for a circuit breaker to the current extreme bout of risk aversion, John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd. , wrote in a research note today. But if QE3 is announced down the track and China signals no more policy tightening due to inflation peaking, then a sharp rebound in AUD/USD would follow.
Courtesy: Bloom Berg
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