Australian, N.Z. Dollars Slide on RBA Minutes, Europe Concerns

By Candice Zachariahs

Feb. 17 (Bloomberg) -- The Australian dollar slid as the central bank said record-low interest rates will take time to revive economic growth and the euro dropped to a 2 1/2-month low, raising speculation investors will dump higher-yielding assets.

The New Zealand dollar also fell as Moody’s Investors Service said Austrian, Swedish and other banks with subsidiaries in eastern Europe may face rating downgrades. Bonds in Australia rallied, signaling renewed concerns over global growth may erode the yield premium Australia and New Zealand offer investors who buy the two nations’ assets with low-cost funds.

“Anything which is a higher-risk currency or relies on yield to provide support is going to be under steep pressure,” said Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney. The Australian currency is in “real trouble of heading sharply lower” and could slide towards low as 62.50 cents, Gibbs said.

Australia’s currency fell 0.6 percent to 64.54 U.S. cents as of 1:11 p.m. in Sydney from late in Asia yesterday. The currency slipped 0.2 percent to 59.48 yen. New Zealand’s dollar declined 1.1 percent to 51.35 cents and 0.7 percent to 47.31 yen.

The Moody’s report helped push the euro below $1.27, the lowest since Dec. 5, and “accelerated dollar gains across the board,” said Callum Henderson, head of global currency strategy at Standard Chartered in Singapore.

‘Modest Effect’

The RBA said interest-rate cuts and a A$42 billion ($27 billion) government stimulus plan will have “only a modest effect on the near-term,” suggesting concern the economy may stagnate, in minutes of its Feb. 3 meeting, released in Sydney today. Stimulus measures should be “conducive to stronger demand later in the year,” the central bank said.

The central bank reduced interest rates 1 percentage point in February, taking its total cuts to 4 percentage points since early September. Traders are betting on a 48 percent chance of a three-quarter percentage point cut when the bank meets in March, up from a 16 percent chance yesterday.

“The market recognizes that the Australian economy’s fortunes are not completely in the government and central bank’s control,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “At the margin these minutes should be supportive for the Australian dollar, but it’s still at the whim of what’s happening globally with commodities and risk aversion.”

Australian government bonds rose, pushing down the yield on the two-year note by 11 basis points, or 0.11 percentage point, to 2.74 percent. Yields on the 10-year note fell eight basis points to 4.31 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.640, or A$6.40 per A$1,000 face amount, to 107.616.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.28 percent from 3.34 yesterday.

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