The Australian dollar fell from an eight-month high on Thursday, hurt by selling against the Kiwi dollar after New Zealand showed enough restraint in its national budget to avoid a credit downgrade. The Aussie slid to $0.7778, off an offshore high of $0.7893, a level last seen on October 2. It fetched $0.7848 here Wednesday.
The Aussie was down on the Kiwi dollar at NZ$1.2545, from Wednesday's NZ$1.2646. "There was some pretty aggressive liquidating of the Aussie against the Kiwi as some had added to their positions on the prospect of a rating downgrade," said Philip Burke, a currency dealer at J.P. Morgan.
New Zealand defied fears of a credit-rating downgrade on Thursday after it moved to rein in spending in its budget for the coming year and scrapping tax cuts. But losses in the Aussie were limited as Japanese investors stepped in to buy the currency, Burke said.
The Aussie rose against the yen, to 75.24 yen from Wednesday's 74.76. The local dollar has surged 22 percent against the greenback in the last two months on hopes for a global economic recovery and on weakness in the US dollar.
But given Australia probably fell into a recession in the first quarter, with the economy set to weaken further this year as unemployment rises, some analysts said investors should sell the Aussie now at around these levels. Data showed on Thursday Australia's business investment fell faster than expected last quarter as the economic crisis forced firms to cut spending, signalling that Australia was in its first recession in 18 years.
"The data reaffirms our negative outlook for first-quarter gross domestic product. This adds to the view that the Australian dollar is a sell into strength," said Robert Rennie, an analyst at Westpac. Traders said speculative investors had started to add short positions around $0.80.