Re: The World's Worst Currency? Beware the A$.......
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Australia, New Zealand Dollars Fall on Worsening Global Outlook
Jan. 13 (Bloomberg) -- The Australian and New Zealand dollars fell against the yen for a fourth day and weakened versus the U.S. currency, as a deepening global slowdown and a decline in commodity prices tempered demand for higher-yielding assets.
New Zealand’s dollar dropped to the lowest level versus the U.S. dollar in almost four weeks after Standard & Poor’s revised the nation’s AA+ foreign-currency credit rating outlook to negative from stable. Australia’s dollar touched the lowest level in more than three weeks against the yen as gold, the country’s third-most valuable export, dropped the most in 1 1/2 months.
“Renewed concern about the global outlook has seen investors sell growth-sensitive currencies in favor of the relative safety of the U.S. dollar,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “The new year’s optimism has well and truly worn off.”
Australia’s dollar declined 1.5 percent to 67.62 U.S. cents as of 1:34 p.m. in Sydney from 68.65 cents late in Asia yesterday. It reached 67.44 cents, the lowest level in more than three weeks. The currency fell 2.2 percent to 60.49 yen from 61.80 yen after touching 60.32 yen, the weakest since Dec. 17.
New Zealand’s dollar fell to 56.46 U.S. cents from 57.93 cents late in Asia yesterday. It reached 56.27 cents, the lowest since Dec. 17, The currency dropped to 50.49 yen from 52.14 yen. It touched 50.36 yen, the weakest in more than three weeks.
Australian government bonds extended a rally, pushing down the yield on 10-year notes to the lowest since at least 1969, and money market rates rose. The MSCI Asia Pacific Index of regional shares slumped 2.8 percent, the biggest loss since Dec. 12. New Zealand and Australian shares also declined.
‘Come Under Pressure’
New Zealand’s long-term foreign-currency credit rating, which is one level below the highest investment grade, may be cut if the nation’s current-account deficit and overseas debt begin to curb growth and investment, S&P said as it affirmed the rating. The outlook on the AAA local-currency debt remains stable, it said.
“It’s not going to be easy for New Zealand,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The currency will come under pressure.”
The New Zealand dollar also fell as the New Zealand Institute of Economic Research said today in Wellington that a net 64 percent of companies surveyed last quarter expected the economy would worsen over the next six months.
“There is enough in this survey to encourage a rate cut of at least 100 basis points” this month, Sue Trinh, senior currency strategist in Sydney at RBC Capital Markets, wrote in a research note today. The survey is “bearish the New Zealand dollar,” she said.
Australia Ratings
The Reserve Bank of New Zealand will lower its benchmark interest rate by at least a half-percentage point to 4.50 percent at its Jan. 29 meeting, according to a Bloomberg News survey of economists. A basis point is 0.01 percentage point.
The Bloomberg UBS Constant Maturity Index of 26 raw materials dropped 4.4 percent yesterday, the most since Dec. 5, while the price of gold fell 3.9 percent, the largest decline since Dec. 1.
Commodities including coal, iron ore, gold and oil account for 60 percent of Australia’s export revenue. New Zealand relies on raw materials including milk and timber for 70 percent of its overseas shipments.
Australia’s foreign-currency credit rating of AAA, the highest investment grade, was affirmed by S&P today. The company also said the outlook on the rating is stable.
Implied Volatility
Implied volatility on one-month Australian dollar options against the yen rose to 34.68 percent from 33.79 percent late in Asia yesterday, indicating a greater risk of exchange-rate fluctuations that can erode profit on so-called carry trades.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Benchmark interest rates are 4.25 percent in Australia compared with 0.1 percent in Japan and as low as zero in the U.S.
Financing costs in Australia rose. The difference between the rate Australian banks charge each other for three-month loans and the overnight swap rate climbed to 57.5 basis points from 55.3 basis points yesterday. The gauge, a measure of cash scarcity, averaged 11 basis points in the five years before the credit crunch started in August 2007.
Australian two-year government bonds rose for a fifth day, the longest stretch since October. The yield fell by as much as 14 basis points to 2.62 percent, the lowest since Dec. 15. The 10-year yield reached 3.95 percent, near the lowest since 1969 when Bloomberg began compiling the data.
Bond Yields
“We are heading toward an extremely low-yield world for government bonds,” said Peter Jolly, head of market research at NabCapital in Sydney, the investment banking unit of Australia’s largest lender. “Although yields are very low relative to Australia’s history, they remain some of the highest in the world. We’ve seen some foreign buying of Australia’s yields.”
The two-year yield may fall to 2.5 percent and the 10-year yield may decline to 3.9 percent by the end of this quarter, Jolly forecast.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 4.05 percent from 4.23 percent late in Asia yesterday.
To contact the reporter on this story: Ron Harui in Singapore at
[email protected]; Tracy Withers in Wellington at
[email protected].
