Australian, New Zealand Dollars Slip Ahead of Central Bank Meet

By Candice Zachariahs

Feb. 2 (Bloomberg) -- The Australian dollar fell to the lowest in two months on expectations among economists that the central bank will cut interest rates to the lowest since at least 1964 and after stocks closed lower in the U.S. last week.

New Zealand’s currency traded at its weakest in six years after U.S. stocks fell for a fourth straight week, capping the market’s worst January retreat. The Reserve Bank of Australia is likely to cut its benchmark rate 1 percentage point to 3.25 percent, the cheapest benchmark rate since 1964, according to the median forecast of 20 economists surveyed by Bloomberg News.

“There will be a very close focus on the size of the cut and also whether there’s any hint in the statement of how low the central bank is likely to go,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We are going to start the week on a negative tone and the RBA may reinforce that with a 100 basis point cut.”

Australia’s currency slid 0.4 percent to 63.51 U.S. cents as of 8:22 a.m. in Sydney from 63.76 cents late last week in New York. The currency traded as low as 63.42 cents, the lowest since Dec. 2. It fell 0.3 percent to 57.18 yen.

New Zealand’s dollar declined 0.3 percent to 50.77 U.S. cents from 50.92 in New York. It bought 45.68 yen from 45.72.

Benchmark interest rates are 4.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Data this week

Declines in the Australian dollar may be limited as retail sales probably grew 0.3 percent in December, according to a Bloomberg News survey of 12 economists. The Bureau of Statistics will release the report at 11:30 a.m. on Feb. 4.

The currency may trade down to 62.90 U.S. cents before getting a “bounce” mid-week as retail sales data shows “the Australian economy finishing the year with a bit of resilience in huge contrast to what we’ve seen in the rest of the world,” Callow said.

Futures traders decreased their bets that the Australian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a fall in the Australian dollar compared with those on a gain -- so-called net shorts -- was 3,415 on Jan. 27, compared with net shorts of 6,115 a week earlier.

Reports this week in the U.S. are expected to show the jobless rate probably jumped in January to the highest level in 16 years, while the manufacturing and service industries fell further.

Unemployment climbed to 7.5 percent, and payrolls fell by 530,000, the 13th consecutive decrease, according to a Bloomberg News survey ahead of Labor Department figures Feb. 6. Other reports may show manufacturing, services and housing shrank further, signaling more firings ahead.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net