Australian Dollar Falls Below 90 U.S. Cents as Rate Cuts Seen

By Candice Zachariahs and Ron Harui
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Aug. 8 (Bloomberg) -- The Australian dollar fell below 90 U.S. cents for the first time since March, extending its longest losing streak since 1980 on speculation the Reserve Bank of Australia will reduce borrowing costs from a 12-year high.

Australia's currency headed for a third weekly loss as speculation a drop in consumer spending will cool inflation pushed the two-year government bond yield down to the lowest since October 2006. The Australian dollar also declined after prices of commodities the nation exports such as crude oil slid this week because the outlook for global growth deteriorated.

``There is growing talk of RBA rate cuts and commodity prices are plunging,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``A selling scenario seems to be under way for the Aussie,'' he said, referring to the currency by its nickname.

Australia's dollar dropped for a ninth day, touching 89.84 U.S. cents, the lowest since March 24, before trading at 90 cents at 11:19 a.m. in Sydney, from 91.10 cents late in Asia yesterday. The currency slipped to 99.15 yen from 99.71 yen yesterday.

The Aussie fell 3.1 percent the past week after Reserve Bank Governor Glenn Stevens said Aug. 6 that slowing demand meant ``scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.''

A benchmark rate of 7.25 percent in Australia, compared with 0.5 percent in Japan and 2 percent in the U.S., has made the currency a favorite with investors looking to invest in higher- yielding assets.

Interest-Rate Traders

Traders are betting the Reserve Bank will lower borrowing costs by 97 basis points over the next 12 months, compared with the 32 points of cuts estimated two weeks ago, according to a Credit Suisse Group index based on interest-rate swaps. They are certain of a rate cut in September, a similar index shows. A basis point is 0.01 percentage point.

The currency dropped this week along with the prices of gold and crude oil, Australia's third and fourth most-valuable exports.

Gold fell for a fifth straight session in New York yesterday, the longest losing streak since June 2007. Crude oil futures fell as low as $117.11 a barrel on Aug. 7, 20 percent below the July 11 record of $147.27. Commodity shipments contribute 17 percent to Australia's economy.

The Aussie is approaching a support band between 89.55 cents and 90.25 cents, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote yesterday in a report. A close below this level would ``point back'' to 85 cents, he said. Support is a level where buy orders may be clustered.

Australian government bonds gained. The yield on the 10-year bond fell 6 basis points to 5.92 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.433, or A$4.33 per A$1,000 face amount, to 94.771.

Returns on the two-year securities fell for a 13th day, declining 4 basis points to 5.915 percent. The price gained 0.082 to 98.76. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net