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Aussie Set for 1st Weekly Drop This Month on US Shutdown Risk - (Bloomberg)

Posted by Chris Advincula on Sep 27, 2013 5:14:00 AM

The Australian and New Zealand dollars headed for their first weekly declines this month against the greenback as the risk of a U.S. government shutdown cut demand for higher-yielding assets.

The Aussie held a three-day loss before the Reserve Bank of Australia meets next week to set policy. Australia’s Treasurer said today the nation’s budget has worsened since last month. New Zealand’s central bank said in its annual report that the kiwi remains elevated, before revealing it bought a net NZ$1 million ($831,900) in August. The U.S. Congress has until the end of this month to agree on spending measures, with the country set to hit its borrowing limit next month.

“I don’t think people will be too willing to take any big positions with that kind of event risk on the horizon,” said Richard Breen, a Sydney-based senior consultant at Rochford Capital, a currency and interest-rate risk management company. “If Aussie can hold above 93.40 U.S. cents, and we do get some kind of resolution out of the U.S., then I think it has the legs to go higher.”

Australia’s dollar was little changed at 93.60 U.S. cents at 4:50 p.m. in Sydney from yesterday, after earlier touching 93.33, the lowest since Sept. 17. It has fallen 0.4 percent this week. New Zealand’s currency rose 0.3 percent to 83.14 U.S. cents, trimming its decline since Sept. 20 to 0.7 percent.

The Aussie dropped 0.4 percent to 92.37 yen and New Zealand’s dollar was little changed at 82.05 yen.

Best Performer

Australia’s currency has gained 5.3 percent in September, and 2.5 percent so far this quarter. The kiwi has risen 7.7 this month and 7.5 percent in the quarter, making it the best performer over both periods among major currencies tracked by Bloomberg.

U.S. House Republican leaders are considering a delay in a debt-ceiling proposal, according to a congressional aide, as the Senate plans to vote today on a spending bill.

“Tension will increase on the U.S. fiscal front as we approach the deadline of potential government shutdown, and will likely act as a drag on sentiment,” Gary Yau, a research associate at Credit Agricole CIB in Hong Kong, wrote in a note to clients today. “Overall, the environment remains one of consolidation” in currency markets, according to the note.

Demand for the Aussie was limited with central bank policy makers set to debate the need for further interest rate cuts at a meeting on Oct. 1. Traders see 12 percent odds the RBA will reduce benchmark borrowing costs from a record-low 2.5 percent, interest-rate swaps data compiled by Bloomberg show.

Budget Worsens

Australian Treasurer Joe Hockey said the nation’s budget has worsened since a pre-election statement less than seven weeks ago as the new coalition government announced the final deficit for last fiscal year. Treasury said in its pre-election outlook released Aug. 13 that the federal deficit will widen to A$30.1 billion ($28.2 billion) this fiscal year that ends June 30, 2014, and is no longer projected to return to balance in 2015-16.

“The presented numbers in the pre-election economic and fiscal outlook are different to what exist today,” Hockey told reporters in Canberra today in his first press conference since the election. “I’m advised that we’ll go extremely close to the debt limit of A$300 billion before Christmas.”

The Reserve Bank of New Zealand bought a net NZ$1 million last month, after a NZ$2 million net sale in July, the central bank said on its website today. The RBNZ’s foreign currency intervention capacity rose to NZ$9.7 billion as of Aug. 31 from NZ$9.04 billion on July 31.

While the kiwi dollar has fallen recently, it remains elevated, the central bank said in an annual report published today. The currency is damping tradable inflation, it said.

“We expect the NZD to remain elevated, rather than extend further, supported by domestic pillars,” ANZ Bank New Zealand Ltd. analysts including David Croy, the head of markets research in Wellington, wrote in a research report. “The economy is firmly into an economic expansion.” 


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