Aussie falls second day on prospects RBA to say rally a concern

[SYDNEY] Australia's dollar weakened for a second day on speculation Governor Glenn Stevens will signal at a policy meeting that the currency's recent advance is a concern.

The Aussie dropped against 14 of its 16 major peers on Tuesday after surging 13 per cent from a seven-year low set in January to a nine-month high last week.

Commonwealth Bank of Australia, the nation's largest lender, estimates the currency is now strong enough to worry the central bank after becoming the most overvalued since 2014.

Policy makers will leave their benchmark interest rate at a record-low 2 per cent, according to all the economists surveyed by Bloomberg.

"We don't expect the RBA to move today but what will be important is what they say about the currency," said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney.

"The prospect of a change in RBA rhetoric is weighing on the Aussie."

The Australian and New Zealand dollars led losses among developed-market peers versus the greenback as oil extended declines for a third day and data from the Antipodean nations added to signs of weakness in their economies.

The Australian dollar slipped 0.4 per cent to 75.75 US cents as of 11.13 am in Tokyo after dropping 0.9 per cent on Monday. The currency extended losses after a report Tuesday showed Australia's trade deficit in February widened to A$3.41 billion (S$3.5 billion), exceeding analysts' median estimate of A$2.5 billion.

The currency appreciated to 77.23 US cents on March 31, the strongest level since July 1.

New Zealand's dollar slid 0.3 per cent to 68.14 US cents after a gauge of business confidence in the first quarter dropped.

The yen strengthened 0.5 per cent to 110.85 per dollar and the euro gained 0.1 per cent to US$1.1398 as investors sought the safest assets. Asian equities and US stock-index futures fell.

"There is a bit of a risk-off theme at present with oil prices down and equities in negative territory in the US," Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd in Singapore.

"This has seen demand for euro and yen which tend to do well in a risk-off environment. Unsurprisingly, with commodity prices down, both Aussie and kiwi are coming under some pressure."

The Aussie "might be getting a bit ahead of itself," Mr Stevens said in a speech in Sydney on March 22. In the March 1 policy statement, he said the currency "has been adjusting to the evolving economic outlook."

That echoed a line the governor has used since August last year when the RBA ended more than a year of commentary indicating some depreciation may be warranted.

BLOOMBERG