“Australia’s dollar fell to the lowest since October 2011 versus its U.S. peer after the 10-year yield spread between the two countries’ debt narrowed to the least in more than four years on signs the American economy is improving.
Local bonds fell, with the 10-year rate climbing to a 2-month high, after U.S. Treasury benchmark yields rose to the most since April 2012. The Aussie weakened to a more-than four-year low against its New Zealand counterpart. Pacific Investment Management Co., which runs the world’s biggest bond fund, said it expects further interest rate cuts by the Reserve Bank of Australia as mining investment cools.
“The diminishing yield differential is one argument for the Aussie’s move lower,” said Michael Turner, a debt strategist at Royal Bank of Canada in Sydney. “There certainly seems to be some downside risk to growth in Australia. The risk is skewed for more easing by the RBA.”
The Australian dollar touched 95.36 U.S. cents, the weakest since October 2011, before trading at 95.38 at 3:53 p.m. in Sydney, 0.8 percent below yesterday’s close. It fell 0.6 percent to NZ$1.1840 after earlier dropping to NZ$1.1837, the lowest since January 2009. The Aussie weakened 0.8 percent to 97.78 yen. New Zealand’s dollar slid 0.2 percent to 80.57 U.S. cents and lost 0.3 percent to 82.45 yen.
Australia’s 10-year bond yield rose 15 basis points or 0.15 percentage point to 3.47 percent, after touching 3.5 percent, the highest since March 27. The U.S. Treasury 10-year yield rose to 2.23 percent today, a level unseen since April 2012. The spread between the two narrowed to 116 basis points yesterday, the least since November 2008.
