By Patricia Lui
April 20 (Bloomberg) -- The Australian and New Zealand dollars weakened on concern disagreements among European policy makers will exacerbate the global economic slump.
Losses in Australia’s dollar deepened after a report showed producer prices unexpectedly fell in the first quarter, increasing the scope for the Reserve Bank of Australia to extend interest-rate cuts. The producer price index contracted 0.4 percent in the three months ended March 31, compared with a forecast gain of 0.6 percent in a Bloomberg News survey.
“We were already seeing a weaker tone in the Aussie as it was due for some pullback after its recent rally,” said Amy Auster, head of foreign-exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. “The weaker-than-expected PPI underlines the fact that the RBA will need to cut rates again.”
Australia’s dollar fell to 71.67 U.S. cents at 12:35 p.m. in Sydney from 72.25 cents on April 17 in New York. It was at 70.84 yen from 71.64 yen. New Zealand’s currency slid to 56.66 U.S. cents from 56.80 cents. It bought 56.04 yen from 56.32 yen.
The euro declined to a one-month low against the U.S. dollar on concern policy disagreements within the ECB will undermine efforts to help the region’s economy recover.
The 16-nation currency slid to $1.2989 from $1.3044 in New York on April 17. It earlier reached $1.2967, the lowest level since March 17.
‘Due for Correction’
“The Aussie is already due for some downward correction and it’s not surprising we are seeing this today as there’s quite a bit of selling of the euro and buying of U.S. dollars this morning,” said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney, using the currency’s nickname. “The market seems to think the Federal Reserve will be able to steer the U.S. economic recovery and inflation risks better than the ECB can.”
The RBA will release the minutes on its April policy meeting tomorrow while the statistics department will announce first quarter inflation numbers on April 22.
Both these events may potentially weigh on the Australian dollar in the next few days, ANZ’s Auster said, citing a trading range of 70.50 to 73.00 against the greenback.
Euro Weakens
“No one really knows whether the ‘green shoots’ represent the start of a real recovery, so doubts are lingering and we’re hovering around key levels for metals, equities and currencies,” said Adam Carr, senior economist at ICAP Australia Ltd. in Sydney. “The market is looking for a decisive move in either direction.”
Australian government bonds fell for a second day, pushing the 10-year yield up four basis points, or 0.04 percentage points, to 4.56 percent. The price of the 5.25 percent security due in March 2019 slid 0.299, or A$2.99 per A$1,000 face value, to 105.482, Bloomberg data show.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 3.66 percent from 3.6750 percent on April 17.
To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net
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