By Garfield Reynolds
April 14 (Bloomberg) -- The Australian dollar declined for the first time in four days on speculation yesterday’s advance to a six-month high was overdone. New Zealand’s dollar dropped.
Both currencies also weakened against the yen as Japanese shares and U.S. stock futures dropped, damping investor demand for higher-yielding assets. Australia’s dollar extended declines after a survey of businesses showed pessimists outnumbered optimists for a 14th straight month.
“There’s been some consolidation after yesterday’s move to a six-month high as equity futures have also weakened, capping the rally for now,” said Sue Trinh, senior currency strategist at RBC Capital Markets Ltd. in Sydney.
Australia’s dollar slid 0.4 percent to 72.89 U.S. cents as of 12:09 p.m. in Sydney from yesterday, when it touched 73.25 cents, the strongest level since Oct. 7. The currency fell to 72.79 yen from 73.25 yen.
New Zealand’s dollar declined to 58.97 U.S. cents from 59.25 cents in New York. It dropped to 58.90 yen from 59.30 yen.
The Australian currency may fall as low as 71.80 U.S. cents, Trinh said. New Zealand’s dollar may find sellers at 59.80 U.S. cents and buyers around 58.30 cents, she said.
Australia’s dollar strengthened 1.7 percent yesterday, the most since April 2, after Goldman Sachs Group Inc. reported profit that exceeded analysts’ estimates and Chinese Premier Wen Jiabao indicated his government is considering additional stimulus measures.
‘Enthusiasm’
“There’s enthusiasm about the Australian dollar after gains in international equities and commodities, bolstered by China’s cyclical recovery,” said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. “Australia’s economic health relative to other major nations is also supportive for the currency.”
The South Pacific nations’ currencies may retreat in the short term before resuming their rallies this year, Grace said. Australia’s dollar may decline to less than 72 U.S. cents this week and New Zealand’s may weaken to below 58 U.S. cents, he said. Commonwealth Bank estimates Australia’s dollar will advance to 77 U.S. cents by the end of the year and New Zealand’s will reach 65 cents, Grace said.
Australian business confidence rose in March for a second month, boosted by government cash handouts to taxpayers and the lowest borrowing costs in five decades. The sentiment index gained 9 points to minus 13, according to a National Australia Bank Ltd. survey released in Sydney today.
Loan Approvals
Australian home-loan approvals rose for a fifth month in February and consumer confidence jumped this month by the most since August, reports last week showed, adding to signs a record round of interest-rate cuts and government handouts are boosting the economy.
The New Zealand and Australian dollars are the best and third-best performers, respectively, against the yen in the past month as a revival in risk appetite spurred investors to return to so-called carry trades. New Zealand’s dollar rose 15 percent against the yen, the most among the 16 most-traded currencies, while Australia’s strengthened 13 percent.
Carry trades involve borrowing in nations with low benchmark interest rates, such as Japan’s 0.1 percent, to buy assets in countries with higher rates, such as Australia and New Zealand, where the benchmarks are both set at 3 percent. The risk is that exchange-rate movements can erase profits.
Australian bonds fell for a second day. The yield on the benchmark 10-year note advanced one basis point, or 0.01 percentage point, to 4.61 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security maturing March 2019 fell 0.041, or A$0.41 per A$1,000 face amount, to 105.082.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.835 percent.
To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net.
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