BLBG: Australian, N.Z. Dollars Near 3-Week Lows on U.S. Bank Concerns
The Australian dollar traded near its lowest in almost three weeks and New Zealand’s was close to the weakest in a month as concern U.S. banking losses will deepen damped investors’ appetite for risk.
The currencies fell yesterday by the most in more than two months as Bank of America Corp. tumbled after increasing future loan loss provisions 57 percent to $13.4 billion. Reserve Bank of Australia Governor Glenn Stevens said in a speech today the economy is well placed to rebound from its first recession since 1991 because the financial system is strong and companies will benefit from a pickup in China.
“The focus will remain on the global backdrop,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Auckland. “Risk appetite is still fragile and the market is increasingly realizing that the recent recovery was excessive.”
Australia’s dollar traded at 70.11 U.S. cents as of 1:36 p.m. in Sydney, from 69.66 cents yesterday in New York, when it touched the lowest since April 1. It was at 68.96 yen from 68.20 yen. New Zealand’s currency bought 55.54 U.S. cents from 55.25 cents yesterday, when it reached as low as 54.88 cents, the weakest since March 19. It bought 54.57 yen from 54.06 yen.
U.S. stocks tumbled yesterday after six straight weeks of gains as concern grew that credit losses are worsening while lower commodity prices dragged down energy and material prices, key exports of Australia and New Zealand.
‘Overly Complacent’
Bank of America, the lender that lost three-quarters of its market value in the past year, plunged 24 percent as rising charge-offs for uncollectible loans overshadowed better-than- estimated earnings. Citigroup Inc. dropped 19 percent after Goldman Sachs Group Inc. said the bank’s credit losses are growing at a “rapid rate.” U.S. Steel Corp. and Exxon Mobil Corp. declined as oil and industrial metal prices decreased.
“The big concern is that the market got overly complacent on risk in recent weeks and we are now moving into a period where we are questioning this,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The recent weeks are about as good as it gets between risk appetite and economic data sentiment.”
The Australian dollar will remain weak in coming sessions and investors should take the opportunity to “sell into strength” if the currency rebounds to 70.20 U.S. cents to 70.50 U.S. cents, Westpac’s Rennie said.
RBA Governor Stevens and his board cut the benchmark rate by 25 basis points to a 49-year low of 3 percent on April 7 due to prospects of slowing inflation as unemployment rose and domestic demand stayed weak, according to minutes of the meeting released today in Sydney.
RBA’s Minutes
“The effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than expected,” the RBA said in the minutes. “A period of low capacity utilization and a weaker labor market was seen as increasing the likelihood of a decline in inflation over the medium term.”
Australia’s economic growth is “slowing dramatically,” Treasurer Wayne Swan said in an interview on Australian Broadcasting Corp. radio today. “It’s inevitable there will be a period of negative growth. It’s also important that we underline the strengths in the Australian economy.”
Prime Minister Kevin Rudd said yesterday for the first time that a recession in Australia is inevitable amid a slump in global growth that is eroding demand for natural resources from the world’s biggest shipper of coal and iron ore.
Bonds Jump
Australian government bonds surged on speculation the RBA minutes today showed the bank may trim interest rates further at its next policy meeting in May.
“The minutes confirmed it was a close decision in April,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney. “Clearly there was a debate and it did appear to be a reluctant cut at the time. The bias is still to ease but cuts are not as easily drawn out of the Reserve Bank. There are a lot of indicators that argue rates can still go lower.”
The 10-year yield plunged 27 basis points, or 0.27 percentage points, to 4.325 percent, the steepest drop since January 2002. The price of the 5.25 percent security due in March 2019 climbed 2.21, or A$22.10 per A$1,000 face value, to 107.375, Bloomberg data show.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined for a second day to 3.5950 percent from 3.6550 percent yesterday.
