Australian Dollar Falls Before RBA Meeting: New Zealand's Drops

By Chris Young

July 1 (Bloomberg) -- The Australian dollar fell for the first time in six days before a central bank meeting at which policy makers are forecast by economists to refrain from raising interest rates from a 12-year high. New Zealand's dollar dropped.

Australia's currency slid from its highest in 25 years on speculation the Reserve Bank of Australia will signal its two rate increases this year are slowing the economy and cooling inflation. Australia's currency declined with the New Zealand dollar as traders bet the U.S. currency's losses were too steep.

``We're at the top of the range so I'd expect the Australian dollar to be heavy,'' said Matthew Johnson, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter- bank broker. ``The RBA will be a touch dovish so this will remove yield support for the Australian dollar. They'll talk about inflation as a past-tense problem.''

The Australian dollar bought 95.83 U.S. cents as of 8:21 a.m. in Sydney compared with 96.37 cents in late Asian trading yesterday when it sealed a 5.5 percent advance through the second quarter. It may drop to 95.40 cents today, Johnson said.

New Zealand's dollar dropped 0.3 percent to 76.19 U.S. cents, ending a four-day winning streak that completed a 3.3 percent quarterly loss for the currency on speculation the nation's central bank will cut interest rates in coming months.

Resource Companies

Losses in the Australian dollar will be limited today after the Financial Times reported ArcelorMittal, the world's biggest steelmaker, may buy a stake in Rio Tinto Group, said Johnson.

Australia's currency reached a 25-year high of 96.68 cents yesterday as the prices of the nation's commodity exports climbed to records and Luxembourg-based ArcelorMittal led companies buying stakes in Australia's resource producers. The steelmaker said June 29 it had paid A$212 million ($203 million) for 5 percent of Brisbane-based Macarthur Coal Ltd., raising its stake to almost a fifth of the company.

Reserve Bank Governor Glenn Stevens will keep the overnight cash rate target at 7.25 percent today in Sydney, according to all 25 economists surveyed by Bloomberg News. Six say the bank will raise the rate by the end of the year, and one forecasts a cut. The decision is due at 2:30 p.m. in Sydney.

The central bank has left borrowing costs unchanged since March, when it raised the benchmark rate by a quarter-percentage point for the fourth time in seven months.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.