BLBG:Australia’s Dollar Drops as RBA Chief Sees Scope for More Easing
Australia’s dollar slid to within 1 U.S. cent of the weakest in three years after the Reserve Bank governor said there’s still room to cut interest rates and that the currency may depreciate further.
The Aussie slumped against all 16 of its major peers as traders added to bets the RBA, led by Glenn Stevens, will reduce borrowing costs at a meeting next week. The yen fell from the strongest level in two weeks versus the euro after Japan’s industrial production slid by the most in two years. Bloomberg’s U.S. Dollar Index rose for a second day before the Federal Open Market Committee starts a two-day meeting today. Sweden’s krona dropped after a report showed the economy shrank.
“Stevens said some things that the currency didn’t like, in terms of the prospects for a rate cut,” said Steven Barrow, the head of Group-of-10 research at Standard Bank Plc in London. “The whole speech was quite negative and the market is pricing in a higher chance of a cut next week.”
The Aussie declined 1.4 percent to 90.82 U.S. cents at 7:33 a.m. New York time. It reached 89.99 cents on July 15, the lowest level since September 2010.
The Australian dollar may weaken below 90 cents as soon as this week, Barrow said.
The yen was little changed at 129.91 per euro after appreciating to 129.59 yesterday, the strongest since July 15. Japan’s currency rose 0.1 percent to 97.88 per dollar. The greenback was little changed at $1.3275 per euro.
No Shift
“Recent inflation data do not appear to have shifted” the RBA’s assessment that the outlook for prices may “afford some scope to ease policy further if needed to support demand,” Stevens said today in the text of a speech in Sydney. “The recent decline in the exchange rate seems to make sense from a macroeconomic perspective. It would not be a major surprise if a further decline occurred over time.”
The RBA, which has left the cash rate unchanged at a record-low 2.75 percent for the past two meetings, next meets on Aug. 6. The Australian currency extended declines after government figures showed an unexpected slide in building approvals.
The Aussie has depreciated 10 percent this year, the worst performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro is the best performer, gaining 5.3 percent, while the dollar appreciated 4.6 percent and the yen declined 8.6 percent.
Disappointing Data
The Japanese currency earlier fell against the dollar after the Trade Ministry in Tokyo said Japanese industrial production slid 3.3 percent in June, the sharpest decline since March 2011. Some time will be needed before the central bank’s inflation target is reached, Bank of Japan Governor Haruhiko Kuroda said this week.
“We had very disappointing data for Japan’s industrial production in June and that’s weakened the yen,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “For now the Bank of Japan will wait and see how what they’ve done so far works, but if inflation doesn’t pick up then they might implement some more measures. The yen will weaken further.”
Japan’s currency will depreciate to 115 per dollar by year-end, Commerzbank’s Karpowitz predicted.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.1 percent to 1,025.02 after dropping to 1,021.21 yesterday, the lowest since June 19.
Investors have trimmed bets of an early end to the Fed’s program of quantitative easing, which had increased after Chairman Ben S. Bernanke said on June 19 that policy makers would taper their $85 billion in monthly bond purchases this year and end it around mid-2014 if the economy performed in line with their expectations.
Fed Tapering
Bernanke told lawmakers on July 17 that the central bank’s asset purchases “are by no means on a preset course,” and could be reduced or expanded as economic conditions warrant.
“It’s hard to imagine the FOMC having any substantial discussion on tapering this time around,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “Policy makers will probably emphasize that the labor market is still weak.”
Sweden’s krona depreciated against all but one of its 16 major peers after data showed the nation’s economy unexpectedly shrank in the second quarter.
Gross domestic product contracted 0.1 percent in the three months through June, after growing 0.6 percent in the prior quarter, preliminary data from Stockholm-based Statistics Sweden showed. The economy was forecast to expand 0.1 percent by a Bloomberg survey of 12 economists before the report.
The krona depreciated 1.2 percent to 8.6890 per euro and fell 1 percent to 6.5441 per dollar.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
