WSJ: Australian Dollar Down Late, Back Below US$0.8700
SYDNEY (Dow Jones)--The Australian dollar slid in Asian trade Tuesday, with weak Chinese equities and a drop in U.S. Treasury yields overnight driving a push out of the risk-sensitive currency.
Australian bonds were a beneficiary of both global developments, as prices on both ends of the curve gained.
Setting off Asian trading Tuesday, U.S. stocks were little changed. The bond market, however, moved significantly, with the yield on the 10-year U.S. Treasury note approaching 3%. Jonathan Cavenagh, a currency strategist with Westpac, said a recent slide in yields has lead to a surge in trader talk about the potential of a "double dip" recession in the U.S.
With global growth concerns already heightened, a drop in Chinese stocks further drove down the higher yielding Australian dollar. The drop in Chinese equities largely stemmed from the Conference Board, which said its leading index for China posted its smallest rise since November.
"The move in Chinese equities was shocking to me. That isn't the be all and end all of their economy but that's a good (barometer) for Asia, and especially for the Aussie," said Cavenagh.
At 0620 GMT, the Australian dollar was quoted at US$0.8636, down from US$0.8740 late Monday, moving back below US$0.8700 for the first time this week. Against the Japanese yen, the Australian dollar was at Y76.64 from Y78.10.
While not as significant as the move in U.S. Treasurys, Australian bond yields also declined on Tuesday. The May 2013 Australian government bond was recently yielding 4.5004%, down from 4.5379% late Monday.
Aside from the drop in Chinese stocks, the move in bonds also stemmed from a squeeze being created by the Australian fiscal calendar end on June 30, according to David Verschoor, director of credit for BNP Paribas. With fund managers in the process of closing their books on the year, few are looking to add high levels of risk or make big changes to their portfolios.
"It looks like year-end rebalancing is a lot of what's going on. I think a lot of people are out of the market and have done what they needed to do and therefore market conditions are more illiquid than they should be," said Verschoor, adding volumes were particularly low.
Late in the session, the three-year September contracts were up seven ticks to 95.36 and the 10-year bond up nine ticks to 94.845.
-By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com
