The Australian and New Zealand dollars fell against the yen as Chinese stocks slid for the second day this week, damping demand for higher-yielding assets. The Australian dollar weakened versus the U.S. currency, after earlier climbing above 83 U.S. cents. Asian stocks erased gains after the Shanghai Composite Index and Japan’s Nikkei 225 Stock Average dropped. Societe Generale SA recommended investors sell the so-called Aussie against Japan’s currency on rallies toward 80 yen, citing potential for a “risk unwind.”
“Currency markets will be watching the Shanghai share market which has been a pretty big influence on the Aussie recently,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “It wouldn’t surprise me if the Shanghai Composite continues to fall and we see further weakness in the Aussie.” The Australian dollar will find buyers on a decline toward 81.50 cents, he said.
Australia’s currency fell 0.5 percent to 77.89 yen as of 3:47 p.m. in Sydney from 78.28 yen in New York yesterday. The Aussie dollar slipped 0.2 percent to 82.48 U.S. cents from 82.68 cents yesterday. New Zealand’s dollar fell 0.5 percent to 63.56 yen from 63.89 and bought 67.32 U.S. cents.
The Shanghai Composite slid 3.3 percent, led by metal producers. Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, attracting investors to the two nations’ assets. The risk in such trades is that exchange-rate changes will erase profits.
Exxon Mobil “Suddenly everyone is looking at Shanghai stocks and equity markets are still the key driver of currencies,” said Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, in a Bloomberg Television interview. Calyon is the investment-banking unit of Credit Agricole SA.
Concerns about the impact of China’s economic recovery may sap risk appetite, pushing the Australian dollar down against the yen, Patrick Bennett, Hong Kong-based currency strategist for Societe Generale, wrote in a note to clients.
The Australian dollar earlier gained as much as 0.5 percent to 83.05 U.S. cents after Exxon Mobil Corp. agreed to supply PetroChina Co. with liquefied natural gas from Australia. Minister for Resources and Energy Martin Ferguson said the A$50 billion ($41 billion) accord was the country’s biggest ever.
“Recent diplomatic tensions between Australia and China have raised some concerns in the market that trade and investment deals between the two countries may slow,” Barclays Capital analysts led by Singapore-based David Forrester wrote in a note to clients today. “This outcome suggests that commerce remains the more important driver of the Australia-China relationship than politics, which will assuage these earlier concerns and be good news for the Australian dollar.”
Australian government bonds rose. The yield on 10-year notes fell nine basis points, or 0.09 percentage point, to 5.44 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 added 0.687, or A$6.87 per A$1,000 face amount, to 98.584. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.05 percent from 4.08 yesterday.