Australian And NZ Dollars Slide As Eurozone Worries Dampen Risk-appetite

22:42, 17th May 2012

(RTTNews) - The Australian and New Zealand dollars extended previous sessions' steep losses on Friday morning in Asia as investors flee from risk-associated assets on mounting fears about the eurozone economy amid the financial crisis in Greece and Spain.

Fitch Ratings downgraded Greece's long-term debt ratings to CCC from B-, citing the heightened risk the debt-ridden nation's inevitable exit from the eurozone. That was coupled with a run on Spanish banks on Wednesday after that country officially slipped back into recession.

Spain's biggest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, had lost their credit ratings by Moody's, raising doubts about the monetary strength of the European banking system. The reductions followed the rating agency's downgrade of 26 Italian banks last week.

The sharp jump in yield on Spain bond auctions reflected that the debt crisis is deepening into other vulnerable nations. The treasury sold 2.5 billion euros, compared to the target range of 1.5 billion euros to 2.5 billion euros.

Although the demand was solid, the yields were sharply higher with the January 2015 bond coming in at 4.375 percent, up from 2.89 percent in last month's. Yield on April 2016 bond came in at 5.106 percent, sharply higher than the 3.374 percent recorded in mid-March.

The steep sell-off followed downbeat reports from the U.S. overnight, with the Philadelphia Federal Reserve showing an unexpected contraction in regional manufacturing activity in May.

Its diffusion index of current activity tumbled to a negative 5.8 from a positive 8.5 in April, with a negative reading indicating a contraction in regional manufacturing activity. The drop surprised economists, who had expected a reading of 10.0.

Adding to the negative sentiment, the Conference Board reported an unexpected drop by its leading economic indicators index, which edged down by 0.1 percent in April following a 0.3 percent increase in March. Economists had expected the index to inch up by 0.1 percent.

Also, the Labor Department reported that initial jobless claims unexpectedly came in unchanged in the week ended May 12. Jobless claims came in at 370,000, unchanged from the previous week's revised figure. Economists had expected 365,000 versus the 367,000 originally reported for the previous week.

The benchmark S&P/ASX 200 index is down 2.18 percent, the broader All Ordinaries index is trading 2.1 percent lower than its previous close and the New Zealand's NZX-50 were down 0.53 percent. All other Asian markets are also trading in red, trading down between 1 to 2.5 percent.

The Australian dollar slipped to 78.12 against the yen, its lowest level since January 9. Against the greenback, the aussie reached below the 0.9850 level for the first time since November 2011, hitting as low as 0.9838 before leveling off around 0.9850. The Australian currency also fell to a 4-day low of 1.2891 against the euro and a session's low of 1.0048 against the Canadian dollar.

The New Zealand currency also lost ground in the risk-off mood, hitting its lowest level in 2011 against the euro at 1.6720, falling to nearly a 5-month low of 0.7585 against the US dollar and a fresh 4-month low of 60.24 against the yen. Against its Tasman rival, the kiwi slipped to 1.2983 from a 2-day high of 1.2924 hit at the beginning of the session.

Looking ahead, April department store sales from Japan is due out later in the session and the German producer prices for April is scheduled in the European session. Canada's April inflation report is set to gather some direction in the North American session.