Aussie, N.Z. dollars fall vs. yen as stock drop damps demand

Lagging Chinese economy blamed

March 5 (Bloomberg) -- The Australian dollar fell from a nine-month high against the yen as Asian stocks declined, sapping demand for riskier assets.

New Zealand’s dollar slid versus its Japanese counterpart amid speculation its recent gains were excessive and after China, the South Pacific nation’s second-biggest trading partner, set the lowest growth target since 2004. Losses in the so-called Aussie were limited before a central bank meeting tomorrow when policy makers are expected to keep the highest interest rates among major developed economies.

“It does seem that risk appetite is not as strong as it was one month ago,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. “I still think the risk is to the downside” for the Australian currency.

Australia’s dollar fell 1.1 percent to 86.80 yen as of 2:16 p.m. in New York. On March 2 it touched 88.01, the highest since May 11. The Aussie lost 0.6 percent to $1.0671. New Zealand’s currency, known as the kiwi, declined 1.5 percent to 66.83 yen. It slid 0.9 percent to 82.15 U.S. cents.

The New Zealand dollar’s 14-day relative strength index against the yen was at 73 on March 2, above the 70 level that some traders see as a sign that an asset may be about to reverse direction. The Aussie’s 14-day RSI against the yen was at 78.

Aussie ‘Overvalued’

The Australian dollar “remains overvalued on the basis of fundamental relationships with Australia’s terms of trade and interest rates,” Mike Jones, a foreign-exchange strategist at Bank of New Zealand in Wellington, wrote in a research note today. The Aussie’s “close below $1.0710 would pave the way for a move back to $1.06 and below. We still favor a gradual decline to $1.01 by year-end.”

China’s government will target economic growth of 7.5 percent this year, the lowest goal since 2004, suggesting leaders will tolerate slower expansion while they try to reduce the nation’s reliance on exports. China is Australia’s biggest trading partner and New Zealand’s second-largest export market.

The non-manufacturing purchasing managers’ index fell to 48.4 from 52.9 in January, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement on March 3 in Beijing. A reading above 50 indicates an expansion.

China Economy

“The Chinese non-manufacturing PMI that was below 50 and the National People’s Congress downward revision on growth target today are spurring concerns about economic slowdown and decline in commodity demand,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “That could weigh on commodity currencies” such as the Aussie and kiwi.

Australia’s government bonds advanced, pushing the yield on the 10-year security down eight basis points, or 0.08 percentage point, to 4.04 percent.

The Reserve Bank of Australia will probably keep the overnight cash rate target at 4.25 percent at a meeting tomorrow, according to all 24 economists surveyed by Bloomberg News.

Traders expect Australia’s central bank to reduce borrowing costs by 40 basis points within a year, according a Credit Suisse AG index based on swaps. That compares with 104 basis points in cuts predicted on Feb. 1.

“There’s a good chance the RBA removes its conditional easing bias and moves to a neutral bias,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. “Some of the mining-related data has been very, very strong and the downside risk to Europe has eased considerably as well. Aussie could get a bit of a kick along.”

Bloomberg News

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