The Australian dollar touched its weakest since Oct. 14 as the extra yield the nation’s bonds offer over U.S. counterparts shrank to the narrowest this month. The Aussie declined this week against most major peers that came after Reserve Bank Governor Glenn Stevens said the currency is likely to be “materially lower” in the future.
“If Moody’s did cut New Zealand’s AAA rating it would be in line with the other two agencies, so you might see a little bit of weakness in the kiwi dollar but it shouldn’t be a huge surprise to the market,” said Emma Lawson, the Sydney-based senior currency strategist at National Australia Bank Ltd.
New Zealand’s dollar was little changed at 82.62 U.S. cents at 5 p.m. in Sydney and touched 82.13, the least since Oct. 2. It was at 81.13 yen. Australia’s currency was little changed at 94.91 cents after falling as low as 94.59. It was at 93.19 yen and slid 0.5 percent yesterday to 93.07.
New Zealand’s reliance on overseas investors means it can face difficulties when crises such as the Christchurch earthquakes and Fonterra Cooperative Group Ltd.’s contaminated milk scare occur, Steven Hess, Senior Vice President at Moody’s in New York, said in an interview in Wellington today.
Moody’s is the only one of the three main ratings companies to still rate New Zealand AAA after Standard & Poor’s and Fitch Ratings each lowered their local-currency rankings one level on Sept. 29, 2011, sending the kiwi dollar plunging and spurring bond yields to their steepest climb in a year.
Australia’s yield differential for two-year bonds over similar-maturity Treasuries dropped to 231 basis points today, the least since Sept. 30.
The “interest-rate differential is moving away from the Aussie dollar,” Paresh Upadhyaya, the Boston-based director of currency strategy at Pioneer Investment Management Inc., said in a Bloomberg Television interview. “There’s still room, especially if inflation surprises on the downside, for the RBA to cut again.”
Swaps traders increased bets that the RBA will lower the record low benchmark rate of 2.5 percent with policy makers balancing currency strength as a record mining boom ends with signs of a pick up in house prices. The probability of a 25 basis point cut in May rose to 38 percent today from 30.5 last week, data compiled by Bloomberg show.
Sales of newly-built homes in Australia rose 6.4 percent in September from the previous month, led by a 20 percent increase in unit sales, a Housing Industry report showed today.
The Aussie may also extend declines before data in the U.S. forecast to show private employers added 150,000 positions in October, according to a Bloomberg News survey before the ADP Research Institute report due today.
The Federal Reserve will also end a two-day meeting today with a Bloomberg survey showing analysts expect policy makers won’t announce a paring of stimulus until March.
“If we see improvements in U.S. economic data, that would increase the likelihood of U.S. tapering leading to dollar strength and causing the Aussie to weaken,” said David de Ferranti, a Sydney-based market analyst at FXCM Inc. (FXCM), a currency broking group. The currency will find buyers near the 94-cent level, he said.
Chart: WorldWideMarkets Alpha Trader