Australia and New Zealand’s dollars fell on speculation European leaders will fail to agree on measures to resolve the region’s debt crisis at a summit this week, curbing appetite for higher-yielding assets. The so-called Aussie declined for a third day against the greenback as traders added to bets the Reserve Bank of Australia will cut interest rates in the next 12 months. New Zealand’s currency snapped a three-day advance versus the dollar and yen as Asian stocks slumped. “For this week it’s still the focus from offshore that will be the main driver for currencies,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “Both the kiwi and Aussie are really just falling in sympathy with what’s happening in the euro.” Australia’s dollar fell to $1.0605 at 3:56 p.m. in Sydney from $1.0653 in New York on July 15, when it slid 0.7 percent. The currency dropped 0.6 percent to 83.81 yen. New Zealand’s dollar weakened 0.3 percent to 84.30 U.S. cents, and lost 0.5 percent to 66.60 yen. The euro declined 0.6 percent to $1.4075. The MSCI Asia Pacific excluding Japan Index of shares declined for a third day, losing 0.5 percent. Japan’s financial markets were shut today for a holiday. Euro-area leaders will meet in Brussels on July 21 to discuss efforts to halt the crisis, European Union President Herman Van Rompuy said in a statement July 15. The second summit in a month follows the worsening of the debt concerns that pushed Italy to the attention of investors and drove bond yields to euro-area records across Europe’s most debt-laden nations. Italian Yields If Europe’s debt crisis “creates a systemic issue within some sectors of the European banking system, that could touch off a significant wave of risk aversion in currency markets,” said Robert Rennie, chief foreign-exchange strategist in Sydney at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “The longer it takes, the less cohesive European officials are, the more likely that it touches off increased risk aversion.” Traders are betting the RBA will lower its benchmark rate by 53 basis points over the next 12 months, compared with a prediction for 14 basis points of cuts a week ago, Credit Suisse Group AG indexes showed today. N.Z. Inflation New Zealand’s dollar advanced to an 11-month high against Australia’s after a government report showed inflation in the smaller nation accelerated last quarter. Consumer prices rose 1 percent last quarter from the previous three months. Economists surveyed by Bloomberg predicted a 0.8 percent gain. The inflation data is “indicative of an economy that’s really now firmly in recovery mode,” said Mike Burrowes, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington. “Rates are probably going to go up faster than we previously thought, which is obviously supportive for the New Zealand dollar.” The New Zealand currency climbed 0.2 percent to NZ$1.2581 per Australian dollar after rising to NZ$1.2540, the strongest level since Aug. 24. New Zealand’s government has “real concern” about the strong level of the local currency, Prime Minister John Key told reporters today in Wellington. The kiwi has appreciated 19 percent over the past 12 months against the dollar, and rose to a record 85.07 U.S. cents on July 14. The two-year swap rate, a fixed payment made to receive floating rates that is sensitive to interest-rate expectations, rose seven basis points to 3.48 percent, the highest level since February on a closing basis. To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

Source