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Aussie Holds Drop as NZ Dollar Weakens Amid U.S. Shutdown Woes - (Bloomberg)

Posted by Chris Advincula on Oct 3, 2013 7:27:00 AM

Australia’s dollar remained lower and New Zealand’s currency declined as demand for higher-yielding assets waned amid concern a partial shutdown of the U.S. government will hamper global economic growth.

New Zealand’s kiwi strengthened earlier in Asian trading after central bank Governor Graeme Wheeler said the nation’s interest rates may rise faster than policy makers currently project. U.S. House Speaker John Boehner said President Barack Obama refused to negotiate in a meeting with top congressional leaders about the shutdown.

“The longer the U.S. government is shut down, the bigger the impact on gross domestic product,” said Besa Deda, the chief economist at St. George Bank Ltd. in Sydney. “It does provide a weaker global growth backdrop for the Aussie dollar, and that’s negative for the currency in a broader sense.”

The Australian dollar was at 93.94 U.S. cents as of 4:41 p.m. in Sydney after falling 0.1 percent yesterday to 93.85. New Zealand’s currency dropped 0.1 percent to 83.21 U.S. cents after earlier gaining 0.1 percent.

Australia’s 10-year (GACGB10) government bond yield was little changed at 3.94 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, held at 3.44 percent.

Obama met with congressional leaders yesterday in the first high-level discussion since the federal government began a partial shutdown on Oct. 1. Republicans have been trying to get Obama to the negotiating table and to back off from his insistence on a short-term spending bill and debt-limit increase without policy conditions.

Economic Impact

A partial shutdown of the U.S. government lasting one week would probably shave 0.1 percentage point from growth in the world’s biggest economy, according to the median estimate of economists surveyed by Bloomberg News, with the costs accelerating if the closing persists.

Australia’s dollar erased losses of as much as 0.2 percent after government data showed a services-industry index for China, the nation’s biggest trading partner, climbed to a six-month high. HSBC Holdings Plc raised its 2013 growth forecast for China, the world’s second-biggest economy, to 7.7 percent from 7.4 percent previously, according to a report today.

“Chinese data has been supportive for the Australian dollar,” said Divya Devesh, a foreign-exchange analyst in Singapore at Standard Chartered Plc. “But what is more likely to drive the Aussie, in the near term at least, is going to be global risk appetite given what’s happening in the U.S.”

Forecast Change

Westpac Banking Corp. (WBC) now sees the Reserve Bank of Australia cutting borrowing costs in February and May, Chief Economist Bill Evans wrote in e-mailed note today. Westpac previously predicted a 25-basis-point reduction in November and another one in February.

Interest-rate swaps data compiled by Bloomberg show traders see a 47 percent chance the RBA will cut its benchmark to 2.25 percent or lower by its Feb. 4 gathering.

The Aussie has fallen 8.7 percent this year versus nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the second-worst performance within the gauges. The kiwi has advanced 2.7 percent.

The Reserve Bank of New Zealand expects its benchmark interest rate to rise to about 4.5 percent by early 2016 from a record-low 2.5 percent currently, Governor Wheeler wrote in an article on the central bank’s website today. The central bank has introduced limits on property lending to slow increases in house prices.

“We are keen to see house-price inflation moderate significantly,” according to the article. “If the loan-to-value speed limit is unable to slow house-price inflation, larger increases in the official cash rate would be required.” There’s a 91 percent chance the RBNZ will raise its key rate to 2.75 percent or higher by June, swaps data compiled by Bloomberg show. 


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