BLBG:Australia, N.Z. Dollars Drop a Second Day Versus Yen Amid Greece Concerns
The Australian and New Zealand dollars fell for a second day versus the yen as concern that Greece will struggle to contain its debt crisis damped demand for higher-yielding assets.
Both South Pacific nations’ currencies slid after Standard & Poor’s cut Greece’s credit ratings to “Selective Default.” Australia’s dollar remained 0.3 percent from a one-week high versus the greenback before the European Central Bank begins longer-term refinancing operations today.
“Most participants do expect that Greece will default at some point,” said Andrew Salter, a strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “The Aussie would underperform against most currencies in such an event.”
Australia’s dollar lost 0.2 percent to 86.57 yen at 4:02 p.m. in Sydney. The Aussie was at $1.0775 from $1.0758 in New York yesterday, when it climbed to $1.0784, the highest since Feb. 20. New Zealand’s currency weakened 0.3 percent to 67.54 yen. The so-called kiwi was little changed at 84.05 U.S. cents.
Australia’s 10-year (GACGB10) bond yield sank below 4 percent for the first time since Feb. 17. It lost five basis points, or 0.05 percentage point, to 3.98 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.055 percent.
Greek Rating Cut
S&P cut Greece’s credit grade from CC, two levels above default, after the government added clauses to its debt designed to mop up investors unwilling to take part in an exchange, the New York-based company said in a statement yesterday.
Greece published the formal offer document last week for its agreement to exchange bonds for new securities, with investors taking a 53.5 percent reduction in the value of their investments. The restructuring’s use of so-called collective action clauses would trigger credit-default swap insurance contracts on the nation’s debt, according to the rules of the International Swaps & Derivatives Association.
The ISDA is being asked whether the contracts have already been triggered by the changes in Greece’s debt terms. The committee will decide whether to accept the question by tomorrow, ISDA said in a statement.
The Aussie has gained 2.1 percent this year, according to Bloomberg Correlation-Weighted Indexes. Its New Zealand counterpart has advanced 4.9 percent, the best performance among the 10 developed-nation currencies tracked by the gauges.
‘Topping Out’
“There are definite signs that commodity currencies are topping out,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB, wrote in an e-mailed note today. “Both the Australian dollar and New Zealand dollar have failed to extend gains over recent weeks. Perhaps valuation concerns are finally begging to catch up with these currencies.”
Purchasing power parity, a measure of relative consumer prices across countries, shows the so-called Aussie is trading 35 percent above fair value against the U.S. dollar. The kiwi is 31 percent overvalued versus the greenback.
The Australian dollar held a one-day advance versus its U.S. counterpart before the ECB begins its refinancing operations to help shore up the euro region’s banks.
Europe’s central bank will calls for bids today in the tender of unlimited three-year funds and will announce the allotment amount tomorrow. Financial institutions may ask the ECB for 470 billion euros ($631 billion) in funds, according to the median estimate in a Bloomberg News survey.
“Wait for the LTRO and the boost to risk markets and use that as an opportunity to sell into strength,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. “Dips in the Aussie back to the $1.06 to 1.0650 level are being well-supported. The buyers are out there looking for opportunities to buy.”
To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
