Thursday, the Australian and New Zealand dollars slumped to new lows against their major counterparts as a further decline in stock prices prompted investors to sell higher-yielding assets.
The Aussie dollar dropped to a 23-day low against the US dollar, the euro and the yen. Against the currencies of Japan and Canada, the Aussie declined to a 1-week low during this time period.
Meanwhile, the NZ dollar fell to a new multi-year low against the US dollar and new multi-week lows against the yen and the euro.
The stock markets across the Asia-Pacific region were trading lower today. The Japanese and the Australian markets tumbled nearly 7% and 4.2%, respectively.
Australia's benchmark S&P/ASX 200 plunged 146.7 points or 4.2% to 3,352.9, its lowest close since February 27, 2004 and 50.9% below last year's all-time peak. Australian stocks fell 50.1% in the bear market of 1987 and 59.3% in 1973-74. The broader All Ordinaries index closed down 150.6 points or 4.3% at 3,332.6.
New Zealand's benchmark NZX 50 index closed down 61.6 points or 2.3% at 2,644.7 and the broader NZX All Capital index shed 65.3 points or 2.4% to 2,685.5.
The yen got boost today as a slump in equities reversed investors' risk appetite. As a result, the Aussie fell to a 23-day low of 59.52 against the yen, compared to Wednesday's closing value of 60.95. On the downside, the aussie-yen pair may likely target the 55.6 level.
The Bank of Japan kicked off its two-day monetary policy meeting. In the October 31 meeting, the board of governors trimmed the overnight call rate by 20 basis points to 0.3% after keeping rates on hold for the previous 22 meetings. The rate decision will be announced on Friday.
In economic news, Japan unexpectedly posted a merchandise trade deficit of 63.9 billion yen in October, the Ministry of Finance said. The deficit came in against expectations for a 73.6 billion yen surplus and followed a revised 88.5 billion yen surplus in September. Exports for the month were down 7.7% on year, while imports jumped an annual 7.4%.
During early deals on Thursday, the Aussie edged lower against the US currency. At about 3:10 am ET, the aussie-greenback pair touched a 23-day low of 0.0.6255. The next downside target level for the Australian currency is seen around a new multi-year low of 0.6012. The pair was worth 0.6367 at the close of North American session yesterday.
The Aussie has been steadily declining against the US dollar since the beginning of last week and dropped around 10% thus far this week.
The Aussie has also been declining on expectation that the Reserve Bank of Australia will lower the borrowing cost by at least 75 basis points on its next policy meeting on December 02.
The minutes of the RBA's meeting released on last Monday showed that the board members were determined to enact an interest rate cut of either 50 or 75 basis points. The RBA responded with an interest rate cut of 75 basis points, slashing the bank's official cash rate target to 5.25 percent from the 6.0 percent level established in October.
Most analysts had expected a rate cut of 50 basis points, and it marked the third straight monthly meeting at which the RBA reduced rates. Tuesday's move takes the rate to its lowest level since December 2003. But the RBA isn't likely to stop lowering rates now, say the analysts at Westpac Bank.
"Probably of most interest to us was the reintroduction of a discussion on neutral policy," Westpac said in its analysis of the minutes.
Addressing the Committee for Economic Development of Australia annual dinner at Melbourne, Reserve Bank of Australia Governor Glenn Stevens said that the nation has ample scope to do things that are needed in the current difficult circumstance.
Reiterating the view of the monetary policy, Stevens said Australia is likely to see a week economic growth in the period ahead. At the same time, he noted that the economy might move in an expansionary direction on the back of disciplined macroeconomic policies of past several years.
With regard to inflation, the central banker said after a fairly extended period of above-target inflation, the CPI inflation rate is expected to move back to its target over the next two to three years.
The aussie dipped to 1.9986 per euro by about 3:00 am ET Thursday, compared to yesterday's New York session close of 1.9627. This set a 23-day low for the aussie. If the aussie weakens further, 2.07 is seen as the next target.
In early trading on Thursday, the Aussie declined against the Canadian dollar and hit a 1-week low of 0.7864 at 3:00 am ET. If the aussie-loonie pair moves down further, it may test support around the 0.783 level. The aussie-loonie pair closed yesterday's deals at 0.7990.
The Aussie weakened to a 3-day low against the New Zealand dollar during early deals on Thursday. The pair fell to 1.1674 by about 4:25 am ET, compared to 1.1765 hit late Wednesday in New York. If the aussie-kiwi pair slides further, it may test support around the 1.139 level.
The New Zealand dollar tumbled today after a Regional Trends Survey released by the National Bank of New Zealand showed that the economic activity in New Zealand continued to contract for the third consecutive quarter in the three months ending September. The composite index of economic activity fell 0.1% in the quarter ending September, following a 0.5% drop in the three months to June. In the March quarter, economic activity dipped 0.7%. Year-on-year, the growth rate eased to 0.2% in the third quarter from 0.9% in the second quarter.
The Australian and New Zealand dollars tend to move in the same direction, as both are high-yielding currencies favored by investors for carry trade. The Reserve Bank of Australia's current benchmark interest rate stands at 5.25%, while that of New Zealand's official cash rate is 6.5%. This may be compared to 0.3% rate in Japan and 1% in US, attracting investors, to the South-Pacific nation's assets.
In early trading on Thursday, the New Zealand dollar touched 0.5341 against the US dollar. This set the lowest point for the pair since January 13, 2003. The pair that closed yesterday's trading at 0.5415 may likely find support near the 0.539 level.
The kiwi dropped to a 23-day low of 50.82 against the Japanese yen by about 3:05 am ET Thursday. This may be compared to Wednesday's closing value of 51.86. If the kiwi slips further, it may likely find its next target near the 49.3 level.
Against its European counterpart, the New Zealand dollar dropped to a 6-week low of 2.3516 by about 3:10 am ET. This may be compared to Wednesday's closing value of 2.28087. If the kiwi slips further, it may likely find support near the 2.355 level.
Investors now likely to focus on the New York session, in which the US leading indicators report for October, Philadelphia Fed index for November and the weekly jobless claims report are scheduled.
Markets will also be interested to hear from Treasury Secretary Henry Paulson when he speaks at the Reagan Library in Simi Valley, California.
Also, Fed Governor Randall Kroszner will discuss the effects of the financial crisis on small businesses later in the evening, while St. Louis Fed President James Bullard will speak at an economic conference in Indiana.
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