Australian Dollar Heads for Weekly Loss on Rate Difference
May 19 (Bloomberg) -- The Australian dollar headed for a weekly loss, snapping two months of gains, as accelerating U.S. inflation made it more likely the Federal Reserve will increase interest rates, narrowing the gap with Australia.
The currency also weakened as commodities, which make up 60 percent of Australian exports, fell from record prices this week on concern the rally had gone too far. A U.S. report this week showed quicker inflation, supporting expectations the Fed will raise rates again next month.
``The Australian dollar was sold on the likelihood of more rate rises in the U.S. because of the upside surprise in inflation,'' said Michael Thomas, head of economics and strategy at ICAP Australia Ltd. in Sydney. ``Commodities have not recovered from the carnage early in the week.''
Australia's currency fell to 76.38 U.S. cents at 10:23 a.m. in Sydney, from 77.29 cents in late New York trading May 12. It is down 1.2 percent for the week, the first weekly decline since March 24.
The Fed has raised rates at every meeting since June 2004, bringing its key rate to 5 percent. The bank said last week it will base decisions on what economic reports show about the economy and prospects for inflation. Inflation rose 0.6 percent in April after a 0.4 percent increase in March, the Labor Department said May 17 in Washington.
Reserve Bank Governor Ian Macfarlane raised Australia's benchmark interest rate to 5.75 percent May 3, the first change in 14 months. Nineteen of 22 economists surveyed by Bloomberg News after the move said the central bank won't raise borrowing costs again this year.
Falling Metals
Gold has dropped 7 percent this week in New York while silver fell 12 percent. The copper price lost 4.3 percent this week in London, heading for the biggest weekly decline since July.
``The correction down in base metals put the Australian dollar on the back foot,'' said Richard Grace, senior currency strategist at Commonwealth Bank of Australia Ltd. in Sydney.
The Aluminum price fell 8 percent this week in London and zinc fell 7 percent.
The currency will trade around 79 cents by the end of the year as Australia's economy is still in good shape and global growth looks strong, Grace said.
The yield on the 10-year bond fell 6 basis points, or 0.06 percentage point, to 5.76 percent, the lowest level in two weeks. The price of the 6 percent bond maturing in February 2017 rose 0.448, or A$4.48 per A$1,000 face amount, to 101.859. Bond yields move inversely to price.
To contact the reporter on this story:
David McIntyre in Sydney at
dmcintyre2@bloomberg.net.
Last Updated: May 18, 2006 20:26 EDT
N.Z. Dollar's Drop Reflects Economic Fundamentals (Update1)
May 19 (Bloomberg) --
The New Zealand dollar's 9 percent decline this year better reflects the fundamentals of the economy, Reserve Bank Governor Alan Bollard said.
The currency is the world's worst-performing currency this year amid expectations that economic growth will slow, reducing the attractiveness of the currency. The Treasury department yesterday forecast growth will slow to 1 percent this year from 2.2 percent in 2005.
The currency decline was ``a cyclical adjustment to better reflect the underlying fundamentals of the economy,'' Bollard said in the bank's Financial Stability Report released in Wellington today. There has been a correction from an ``unjustified and over-valued exchange rate.''
Expectations of a narrowing yield differential may lead to reduced demand from offshore investors in the year ahead, the Reserve Bank said. Bollard on April 27 left the benchmark interest rate at 7.25 percent and said he is unlikely to raise the rate further.
Policy makers in Japan and Europe are expected to increase benchmark rates in coming months. The Federal Reserve raised U.S. interest rates for the 16th straight time on May 10.
Also weighing on the currency outlook is expectations that there won't be demand from overseas investors for New Zealand dollar bonds sold to retail investors in Japan and Europe. Sales of Uridashi and Eurobonds the past two years have buoyed the currency and many of those issues are maturing this year.
Uridashi sales are part of the cyclical demand for the currency, which could be easing as economic growth slows, Deputy- Governor Adrian Orr told reporters.
Investors may ``look elsewhere for more high yielding currencies as interest rates globally are rising,'' Orr said. ``The question remains how much of these maturing Uridashi will be rolled over.''
To contact the reporter on this story:
Tracy Withers in Wellington at
twithers@bloomberg.net.
Last Updated: May 18, 2006 20:17 EDT
gli USA sono davvero incredibili...
