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.