Australian Dollar Drops to Lowest in 10 Weeks on Risk Aversion

The Australian dollar fell to its lowest level in 10 weeks as traders sold higher-yielding assets before year-end. New Zealand’s dollar slid for a third day.

Australia’s dollar also declined as investors pared bets that the central bank will raise interest rates, damping demand for the nation’s assets. Demand for riskier securities slumped after Greece’s credit rating was cut by Standard & Poor’s yesterday and the company said it would take further action unless the government tackles the European Union’s largest budget deficit.

“No one is really prepared to take any new risk positions prior to the Christmas period, they’re really closing their books and taking profit,” said Timothy Connors, head of foreign exchange at Custom House Global Foreign Exchange in Sydney. The Australian dollar is “potentially a buying opportunity” under 90 cents, he said.

Australia’s currency fell 1.2 percent to 88.98 U.S. cents as of 4:09 p.m. in Sydney from 90.07 cents in New York yesterday. It touched 88.75, the least since Oct. 7. The currency declined 0.8 percent to 80.21 yen.

New Zealand’s dollar slid 1.1 percent to 71.24 U.S. cents from 72.06 cents yesterday. It bought 64.21 yen from 64.68 yen.

Both currencies also declined as the euro fell below $1.45, triggering so called stop-loss orders that accelerated declines, said Tim Kelleher, vice-president of institutional banking and markets at Commonwealth Bank of Australia in Auckland.

“There were a whole lot of stops below $1.45 in the euro and more stops were triggered below $1.4450 and that’s taken every other currency with it,” Kelleher said. “The market is structurally very short of U.S. dollars.”

Consumer Confidence

Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

New Zealand’s currency also weakened as a survey showed consumer confidence fell in the fourth quarter. The household sentiment index declined to 116.9 from a four-year high of 120.3 in the third quarter, according to the survey by Westpac Banking Corp. and McDermott Miller Ltd. A reading above 100 indicates optimists outnumber pessimists.

Swaps traders have reduced to 37 percent the possibility of a rate increase from the Reserve Bank of Australia in February, from 84 percent late last week, according to a Credit Suisse AG index.

Declines in Australia’s dollar may be limited on speculation its 3 percent drop versus the U.S. currency over the past five days is overdone. The so-called Aussie has been the worst-performing currency against the greenback among its 16 most-traded counterparts over that period.

Buying Opportunity

“The market has really scaled back expectations of rate hikes,” in Australia, Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment banking unit of France’s Credit Agricole SA, said in a Bloomberg Television interview. “This is a temporary weakness we’re seeing in the Aussie dollar and we’re still looking for rates to go higher.” Kotecha recommended buying the currency around the 90-cent level.

Australian government bonds fell. The yield on 10-year notes added three basis points, or 0.03 percentage point, to 5.47 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.21, or A$2.10 per A$1,000 face amount, to 98.43.

The yield on two-year Australian government securities offered a premium of 349 basis points over similar-dated U.S. Treasuries, near the lowest level since Oct. 5.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was unchanged at 4.53 percent.