Australian Dollar Falls From Near Two-Year High After Home Approvals Drop

Australia’s dollar fell from near a two-year high after a government report home-building approvals dropped in August, giving the central bank more reason to delay raising interest rates next week.

New Zealand’s currency weakened for a second day after data showed home building permits dropped to the lowest in 13 months. The Australian dollar was still within 2 U.S. cents of the strongest since it was allowed to float freely in 1983 as the extra yield on the nation’s two-year notes over similar maturity Treasuries was near the highest since June 2008.

“This will take some of the heat out of the argument about how well the Australian economy is going,” said Michael McCarthy, head of Asia-Pacific dealing at City Index Ltd. in Sydney. “The Aussie is holding fairly firmly although we’ve pulled back from the highs above 97 cents -- there doesn’t seem to be much downward momentum at the moment.”

Australia’s dollar fell to 96.65 U.S. cents as of 4:04 p.m. in Sydney from 96.97 cents in New York yesterday, when it rose to 97.30 cents, the strongest since July 2008. The currency has climbed 8.5 percent this month and 15 percent since June 30. The so-called Aussie declined 0.8 percent to 80.53 yen.

New Zealand’s dollar dropped 0.3 percent to 73.55 cents, paring its advance this quarter to 7.4 percent. The currency slid 0.8 percent to 61.28 yen.

The number of permits granted to build or renovate houses and apartments in Australia dropped 4.7 percent in August, the Bureau of Statistics said in Sydney. Economists surveyed by Bloomberg had forecast them to be unchanged.

Rate Bets

Swaps traders reduced to 52 percent the chance the Reserve Bank of Australia will raise borrowing costs at its next meeting on Oct. 5, according to a Credit Suisse AG index, from a 64 percent probability yesterday.

Benchmark interest rates are 4.5 percent in Australia and 3 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.

Australia’s dollar rose to 98.50 U.S. cents on July 15, 2008, the strongest since it was trade freely in 1983.

Sell Aussie

Australia & New Zealand Banking Group Ltd. recommended investors sell the Aussie as it approaches 98.50 cents as worsening perceptions around Europe’s sovereign debt damp demand for higher-yielding assets.

“The market is ignoring flaring concerns in Europe, particularly in the periphery, and they seem to be getting worse by the day,” said Grant Turley, a senior foreign-exchange strategist with ANZ in Sydney. “We’re expecting a shallow pullback to the low 90s.”

Investors should purchase the currency if it falls to that level, the bank said, as it predicted the currency will climb to parity versus the U.S. dollar in 2011.

Australia’s dollar is the second-best performer versus the greenback this quarter on speculation the Federal Reserve will expand stimulus measures to support growth. Demand has also been bolstered as economists forecast the Reserve Bank of Australia will raise its benchmark to 4.75 percent next week.

“If the RBA raises rates next week and the Fed does quantitative easing in November, then this could be the catalyst to push the Aussie toward parity,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender.

Approvals for home-building in New Zealand slumped 17.8 percent in August to the lowest since July last year, Statistics New Zealand said today, citing seasonally adjusted figures.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.67 percent.

Bank of Tokyo Mitsubishi Says Sell Euro, Dollar's Weakness is `Excessive'

Investors should sell the euro against the dollar, betting the single currency will decline to $1.2650, because speculation the Federal Reserve will increase asset purchases pushed the U.S. currency too low, Bank of Tokyo- Mitsubishi UFJ Ltd. said.

“The fear of quantitative easing is now approaching excessive levels,” Lee Hardman, a strategist in London, wrote in a research note today. “We recommend taking advantage of excessive dollar pessimism to position for the euro’s renewed descent.”

The euro rose 0.3 percent to $1.3663 as of 11:10 a.m. in London.

Canadian Currency Strengthens as Economy Shrinks in Line With Forecasts

The Canadian dollar gained for the first time in four days against its U.S. counterpart after data showed the nation’s economy contracted in July, in line with economists’ forecasts.

The currency advanced against all 16 of its most-traded counterparts as Canada’s gross domestic product shrank 0.1 percent after gaining 0.2 percent in June, the government said. It was the first drop since August 2009. Economists predicted a 0.1 percent decline, and Finance Minister Jim Flaherty said yesterday the data might be negative.

“After comments from the finance minister yesterday, the market had priced in poor numbers for Canadian GDP,” Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit, said via e-mail. “Coming in on expectations is actually a bit of a relief to the market, so initial reaction is a stronger Canadian dollar.”

Canada’s currency, nicknamed the loonie, appreciated 0.8 percent to C$1.0245 per U.S. dollar at 9:48 a.m. in Toronto, from C$1.0326 yesterday. One Canadian dollar purchases 97.61 U.S. cents.

Traders are trimming bets that economic growth will be strong enough for Bank of Canada Governor Mark Carney to raise borrowing costs at a fourth consecutive policy meeting next month because the U.S. economy, consumer of about three-quarters of Canadian exports, remains fragile. The U.S. said today its economy grew at a 1.7 percent annual rate in the second quarter, compared with a 3.7 percent pace in the first quarter.

‘Limits’ on Divergence

The Federal Reserve said last week it’s “prepared to provide additional accommodation” to spur U.S. growth. Carney said later in a speech there are “limits” to how far monetary policy in the two countries can diverge.

Probabilities of a quarter percentage-point increase at the Oct. 19 Bank of Canada meeting stood at 18 percent today, down from 40 percent two weeks ago, according to Bank of Nova Scotia data derived from overnight index swaps. Bank of Montreal pegged the odds of an October rise at 20 percent.

“This morning’s number will not likely add to any” expectations for an increase, Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “It may even take away from some of the pricing-in that’s already in the market. I see it as confirming the market’s overall bias against a rate hike in October.”

Canada’s government bonds fell, pushing the 10-year note’s yield 3 basis points higher, or 0.03 percentage point, to 2.77 percent. The price of the 3.5 percent security maturing in June 2020 dropped 26 cents to C$106.19.

Reverse Head-and-Shoulders Supports Euro, Citi Says: Technical Analysis

The euro may strengthen further against the dollar after rallying through $1.292 to form a so- called reverse head-and-shoulders pattern, according to Citigroup Inc., citing technical analysis.

The break of the $1.292 level contributed to the pattern, which is produced when price movements in a security form three bottoms, the middle of which is the deepest. The level that unites the troughs between the peaks is known as the neckline.

“The euro has broken and stayed above levels that suggest that it can push higher,” said Tom Fitzpatrick, chief technical strategist at Citigroup in New York. “People are not as short euro-dollar as they were, but the general sentiment is still bearish.”

He said the euro should rally and test $1.325 versus its U.S. counterpart.

“A close back below support at $1.2920 would question the bullish setup,” Fitzpatrick wrote in a note.














The U.S. dollar has gained 10 percent against the euro since the start of the year. The euro was little changed today at $1.3009.

“The market will need to see more in the near-term, but this is potentially a building block to a higher euro and weaker dollar,” Fitzpatrick said.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.