Australian Dollar Falls to 3-Month Low
The Australian dollar fell to its lowest in more than three months on speculation the Reserve Bank of Australia will signal at a meeting today it’s preparing to cut the benchmark interest rate for the first time in six years.
The currency, nick-named the Aussie, dropped for a sixth day, its longest losing streak since January 2007, as the prices of commodities the nation exports such as gold, crude oil and copper dropped. Traders have raised bets that the central bank will lower borrowing costs from a 12-year high, making the nation’s assets less attractive to international investors.
“The feeling is that maybe the best conditions for the Aussie have come to an end,” said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Markets are a little bit wary ahead of the RBA meeting later today and there’s been a broad correction in commodity prices.”
The Australian dollar declined to 92.69 U.S. cents, the lowest since April 16, before trading at 92.77 cents at 10:27 a.m. in Sydney, from 93.37 cents late in Asia yesterday. The currency dropped to 100.36 yen from 100.85 yen.
Australia’s currency weakened on speculation policy makers meeting to review interest rates will signal they’re moving toward cutting borrowing costs to help the economy after a report yesterday showed house prices fell in the second quarter and data last week showed consumers are reducing spending.
Rate Decision
The Reserve Bank of Australia will keep its benchmark rate at 7.25 percent today, according to all 24 economists surveyed by Bloomberg News. The bank will announce its decision and release a statement at 2:30 p.m. in Sydney.
Traders are betting that the central bank will reduce rates by 67 basis points over the next 12 months, up from 65 basis points yesterday, according to a Credit Suisse Group index based on interest-rate swaps. Central banks usually adjust rates in 25 basis point, or quarter-percentage point, increments.
“The attention will be on the statement,” wrote Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada’s biggest bank, in a research note. “Anything other than a strong hint from the statement that a rate cut could be forthcoming before year-end would disappoint local interest rate markets and see the Australian dollar bounce from last week’s losses.”
The currency also fell as the difference in yield between two-year Australian and U.S. benchmark government debt narrowed to 3.66 percentage points from 3.79 points a week earlier.
Commodities Slide
The Aussie declined as the UBS Constant Maturity Index of 26 raw materials slid the most since March. Prices of gold and crude oil, Australia’s third and fourth most-valuable raw material exports, contributed to declines. Copper dropped to a six-month low amid rising inventories. Exports of metals and other commodities contribute 17 percent to Australia’s economy.
Australian house prices fell in the second quarter for the first time in almost three years, the Bureau of Statistics said yesterday. A separate government report on Aug. 7 may show job growth slowed to 5,000 in July from 29,800 in June, according to a Bloomberg News survey of economists.
Australian government bonds were little changed, with the yield on the 10-year security was unchanged from yesterday at 6.10 percent.
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