Australia dollar savaged as bears heed RBA's call

Thu Dec 12, 2013 8:52pm EST

* Aussie slides to lowest since August vs US dollar

* RBA chief repeats call for a lower currency, market listens

* NZD outperforms as strong domestic data reinforces rate outlook

By Gyles Beckford and Wayne Cole

SYDNEY/WELLINGTON, Dec 13 (Reuters) - The Australian dollar was near its lowest in over three months on Friday after the country's central bank issued yet another call for a lower currency and caught markets in a mood to sell.

The Aussie was nursing its losses at $0.8938, having shed a cent overnight to as low as $0.8913. The next target for bears was the 2013 trough around $0.8848 touched back in August and a break there would take it to territory last visited in mid-2010.

The latest dive came after Reserve Bank of Australia (RBA) Governor Glenn Stevens reiterated that he would prefer to see the local dollar lower as a boost to trade-exposed sectors of the economy.

While Stevens said he did not have a specific target for the currency, he noted that he had thought 85 cents was a more reasonable level than 95 cents.

The central bank has for months been running a verbal campaign to get the currency lower, and has had more success recently as expectations grew the U.S. Federal Reserve would soon start tapering its asset buying program.

"We expect the RBA would be comfortable with the Aussie between 85 and 90 U.S. cents," said Paul Bloxham, chief economist Australia and New Zealand at HSBC.

He noted Stevens also made it clear he would prefer to see any further easing in financial conditions come through a lower currency, rather than a cut in interest rates.

That led the market to pare back the chance of another easing, which was already seen as a distant prospect. Interbank futures imply around a one-in-three chance of another cut in the 2.5 percent cash rate.

The New Zealand dollar also lost ground to the U.S. dollar but not nearly to the extent of its Australian neighbour. The kiwi was hovering at $0.8232 having run into profit-taking at $0.8320 on Thursday when a robust report on U.S. retail sales gave the U.S. currency a boost.

"Good U.S. data pushed up the U.S. dollar and has enhanced tapering prospects for next week, and that's weighing on the kiwi and the Aussie," said Westpac senior strategist Imre Speizer.

Kiwi support going into the weekend was seen initially at $0.8200 and more solidly at the 200-day moving average at $0.8165, with the session high at $0.8258 the first line of resistance.

Local data showed manufacturing activity expanding strongly and at its best level in four months, while ANZ Bank's consumer confidence survey showed sentiment at a near four-year high.

The data merely reinforced expectations the Reserve Bank of New Zealand will likely start hiking rates next year well before Australia moves.

That was a major reason the Aussie dollar tumbled to a five-year low of NZ$1.0805, leaving it down 1.1 percent for the week so far.

Speizer said the cross rate had a history of overshooting and could touch A$0.9400 (NZ$1.0638) over the next few months, given the divergent growth and rate outlooks.

Figures on New Zealand gross domestic product are due out next week and are expected to show growth of around 1.2 percent in the third quarter, for a brisk annual pace of 3 percent.

Third quarter current account data is also due and is expected to contain significant revisions.

New Zealand government bonds slipped on Friday, pushing yields up to 4 basis points higher.

Australian government bond futures steadied after a couple of days of gains. The three-year bond contract was a tick lower at 96.960, while the 10-year contract was flat at 95.745.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.