Australian Dollar Falls to Two-Week Low on Stocks, Jobs Report

July 8 (Bloomberg) -- The Australian dollar fell to its lowest level in two weeks before a government report tomorrow that economists say will show the nation’s jobless rate climbed to a six-year high. New Zealand’s currency declined.

The currencies also weakened versus the yen as Australia’s S&P/ASX 200 Index fell for a fourth day after the Standard & Poor’s 500 index yesterday slumped to the lowest since May 1. Higher interest rates in Australia and New Zealand attract investors to the South Pacific nations’ assets with the risk being that currency market moves will erase profits.

“The downturn in equities is reflecting a rise in risk aversion,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The pressure on the downside may be maintained for the Aussie,” with markets preparing for a “weaker unemployment number,” she said referring to the currency by its nickname.

Australia’s currency fell 0.4 percent to 78.63 U.S. cents as of 11:48 a.m. in Sydney from 78.91 cents in New York yesterday. The currency slipped 0.7 percent to 74.39 yen. New Zealand’s dollar declined 0.2 percent to 62.78 U.S. cents from 62.89 cents in New York and slid 0.5 percent to 59.39 yen.

Australia’s unemployment rate climbed to 5.9 percent last month, the highest level since July 2003, according to the median forecast of 21 economists surveyed by Bloomberg News before the July 9 report. Employers probably cut 20,000 positions last month, the survey showed.

Jobs, Earnings

“The Australian dollar is looking a little vulnerable,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. “The main game is tomorrow’s employment data and, even if there are risks for an upside surprise, markets are unlikely to want to be long Australian dollar going into this very volatile release.” Long positions are a bet that a currency is going to gain.

The Australian dollar will find buyers at 78.60 cents and then 77.90 cents, she said.

Australian home-loan approvals rose in May for an eighth month, climbing 2.2 percent from April, the statistics bureau said today. Confidence among consumers increased in July to the highest level in 19 months, a Westpac Banking Corp. and Melbourne Institute survey conducted between June 29 and July 5 showed. The index climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.

Alcoa Earnings

The South Pacific nations’ currencies fell for a second day against the dollar as Asian equities declined for a sixth session, the longest losing streak since September. U.S. markets fell yesterday on concern second-quarter earnings will fail to justify a four-month rally in stocks. Alcoa Inc. will kick off the U.S. earnings season today as the first company in the Dow Jones Industrial Average to report results.

TD Securities recommended yesterday that investors sell the Australian dollar against the U.S. currency as it may decline to 76 U.S. cents. They should exit the trade if the so-called Aussie rises to 82 cents, the company said.

“We are firmly of the view that a distressed corporate sector -- spilling over into investment and employment loss -- will create inflation undershooting for some time to come,” wrote Annette Beacher, a senior strategist at TD Securities in Singapore, in a note to clients yesterday. “The next move from the RBA is still more likely to be down.”

Australian government bonds advanced. The yield on 10-year notes fell eight basis points, or 0.08 percentage point, to 5.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.610, or A$6.10 per A$1,000 face amount, to 98.836.

Two-Year Swap

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.71 percent from 3.74 percent yesterday.

Bill English, finance minister for New Zealand, said today the government may help local councils raise financing for roads and pipelines by combining all borrowing needs into a so-called “bond bank.” New Zealand councils may spend as much as NZ$30 billion ($19 billion) on infrastructure projects over the next 10 years, much of which would be funded by debt.