Australian Dollar Drops to Lowest This Month on Mining Concern

altAustralia’s dollar declined to the lowest level this month after Reserve Bank of Australia Governor Glenn Stevens said the currency would probably fall if the nation’s mining boom were to collapse.

The so-called Aussie slid to a one-month low against its New Zealand counterpart as Asian stocks declined, sapping demand for higher-yielding assets. The New Zealand dollar erased an earlier gain versus its U.S. peer after Finance Minister Bill English said the currency is above the desirable level.

“Sentiment is still being influenced to some extent by all of these negative news reports regarding the resources sector,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. (NAB) in Sydney. He is “moderately bearish” on the Australian and New Zealand currencies.

The Australian dollar slid 0.5 percent to $1.0392 as of 5:18 p.m. in Sydney, after earlier touching $1.0388, the lowest since July 27. The currency hit NZ$1.2819, the weakest since July 12, before trading at NZ$1.2826, 0.2 percent below yesterday’s close. The New Zealand dollar, known as the kiwi, fell 0.3 percent to 81.02 U.S. cents after earlier climbing as high as 81.42.

The MSCI Asia Pacific Index (MXAP) of shares lost 1.3 percent. The Standard & Poor’s 500 Index of U.S. stocks slid 0.8 percent yesterday, while the Stoxx Europe 600 Index dropped 0.6 percent.

‘High Side’

Australia’s currency is “a bit on the high side,” the RBA’s Stevens said today in testimony to a parliamentary panel.

The governor also spoke about the nation’s resources bonanza, saying “if you really think the whole thing’s going to go away, imminently, the mining boom, this thing is going to completely crash, the relative price shift isn’t there, the whole thing’s not really going to persist, then the Aussie dollar in that scenario presumably would need to be much lower than it is.”

Australian Resources Minister Martin Ferguson said yesterday that the nation’s mining boom has already ended.

Aussie government bonds advanced, with 10-year yields falling five basis points, or 0.05 percentage point, to 3.24 percent.

New Zealand’s English said the exchange rate for his nation’s currency “is higher than we want it to be.” The kiwi’s strength reflects weakness in the U.S. dollar after Federal Reserve policy makers reduced interest rates to near zero, he said in an interview today.

The New Zealand dollar has advanced 0.3 percent this week as investors weigh the prospect of the Federal Reserve implementing a third round of bond purchases, or quantitative easing, to stimulate the economy. The Australian dollar has fallen 0.3 percent since last week.

Easing Expectations

“If expectations for U.S. easing drive stocks higher, these currencies are likely to be bought,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency-margin company.

Fed Bank of Chicago President Charles Evans is scheduled to speak in Hong Kong on Aug. 27. He said yesterday that he doesn’t need to see any more data to know that U.S. policy makers should have more accommodation.

His comments came after the minutes of the Fed’s July 31- Aug. 1 meeting released this week showed that “many members judged that additional monetary accommodation would likely be warranted fairly soon” unless there is a substantial and sustainable improvement in the economy. U.S. central bank officials next meet on Sept. 12-13.

 

Source: Bloomberg

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