BLBG:Australian, N.Z. Dollars Weaken After Spain Downgrade
The Australian and New Zealand dollars weakened against the greenback after Standard & Poor’s downgrade of Spain highlighted concerns that Europe’s debt crisis is deepening, sapping demand for riskier assets.
Australian bond yields dropped to record lows on speculation the country’s central bank will lower interest rates next week. The South Pacific currencies gained briefly against the yen after the Bank of Japan (8301) expanded its asset purchase fund, before erasing their advance.
“There is concern over Europe with Spain’s downgrade and bond yields going back up,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. The Australian and New Zealand currencies “are still vulnerable to the downside.”
Australia’s dollar dropped 0.3 percent to $1.0363 as of 3:07 p.m. in Sydney. It climbed as much as 0.4 percent versus the yen before trading at 83.78 yen, 0.4 percent below yesterday’s close in New York. The New Zealand currency bought 81.12 U.S. cents from 81.46. It fetched 65.57 yen, 0.6 percent lower than yesterday, after earlier rising as high as 66.25.
The yield on Australia’s 10-year debt fell as much as nine basis points, or 0.09 percentage point, to 3.637 percent, the lowest on record. The five-year yield also reached an all-time low, sliding as much as 12 basis points to 3.072 percent.
S&P cut Spain’s long-term credit rating two levels to BBB+ yesterday from A, saying the outlook is negative as the country’s recession undermines efforts to reduce the budget deficit.
BOJ officials increased the bank’s asset-purchase fund by 10 trillion yen ($123 billion) to 40 trillion yen, according to a statement released in Tokyo today.
Traders are betting that the Reserve Bank of Australia will cut its benchmark rate from 4.25 percent at its next meeting on May 1, with a Credit Suisse Group AG gauge indicating that a cut of at least 25 basis points is a certainty.
The central bank this month signaled that it may be willing to lower rates in a bid to bolster the economy, provided inflation remains in check. A report this week showed annual consumer price inflation slowed to 2.2 percent in the first quarter, toward the lower end of the RBA’s 2 percent to 3 percent target range.
-- With reporting by Kristine Aquino in Singapore, Nikolaj Gammeltoft in New York and Cecile Vannucci in Amsterdam. Editor: Benjamin Purvis
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
