Australian dollar falls

The Australian dollar fell on Monday, hitting a two-week low against the yen, as investors cut heavy bets after disappointing US data cast a doubt over the strength of a recovery in the world economy. The Aussie dropped over 2 US cents to $0.8206 from $0.8426 seen here late Friday, and weakened to 77.56 yen from Friday's 80.21 yen. Riskier assets including Asian stocks fell on Monday as investors took fright from a weaker-than-expected US consumer confidence report.
"The Aussie is under-performing as risk positions are unwound and looks to have further to fall," said Patrick Bennett, an analyst at Societe Generale. Australian bond futures rose however as investors sought safer assets. Three-year bond futures rose 0.14 points to 95.05, and 10-year climbed 0.145 points to 94.565. Traders said the Aussie's softness was exacerbated by stop losses, which were taken out at $0.8270 and $0.8250 as well as 78.40 yen and 78.10 yen.
The Aussie also fell to its lowest in over four months against the kiwi dollar to NZ$1.2262, after dropping to as far as NZ$1.2243, and compared to Friday's NZ$1.2404. The Aussie slumped against the kiwi in heavy trade in New York after a stronger-than-expected retail sales report from New Zealand on Friday boosted the kiwi, dealers said.
That set off stop losses at around NZ$1.2360 as traders who had initially shorted the kiwi against the Aussie closed the trade. Traders said no further stop losses are in sight although the Aussie could weaken further to NZ$1.2145, a 38.2-percent retracement of the Aussie's October-April ascent.
For a long time, investors had bet on a widening interest rate differential in favour of the Aussie since Australia's economy is much stronger than New Zealand's, and investors are betting on Australian rate hikes as early as this year. "It's certainly not based on interest rate swaps but more on market positioning," said Alex Sinton, a senior dealer at ANZ.
But some investors are now also betting a world economic recovery may benefit New Zealand more than Australia since the former is a smaller and more volatile economy. "If you are optimistic about the world economy, you want to be short the Aussie-kiwi," said Joseph Capurso, an analyst at Commonwealth Bank. He said the Aussie may weaken further to NZ$1.18. Still, SocGen's Bennett said the Aussie's overall weakness did not reflect its fundamentals, and was due to investors paring their extreme long positions on the currency.