[TOKYO] The Australian and New Zealand dollars fell, halting a week-long rally, as Asian stocks faltered after the IMF cut its global growth outlook and warned of growing challenges for emerging markets.
The Aussie and kiwi were the top performers among 10-developed nation peers over the past week after commodity prices recovered and traders reduced bets that the Federal Reserve will raise interest rates this year. The rebound in the currencies helped pare losses from last quarter that were driven by signs of a slowdown in China.
"The direction of overall Asian stocks today is driving currency markets like AUD and NZD," said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. "Markets are cautious about assuming that 'risk sentiment' will continue to improve from this point." The Aussie dropped 0.4 per cent to 71.82 US cents as of 12:32 p.m. in Tokyo, snapping a six-day gain, while the kiwi declined 0.1 per cent to 66.02 US cents, after gaining for four days. The yen added 0.1 per cent to 119.93 per dollar, and the euro advanced 0.1 per cent to US$1.1253.
The MSCI Asia Pacific Index slid as much as 0.4 per cent while Japan's Nikkei 225 Stock Average declined 0.4 per cent. China's Shanghai Composite Index climbed 3.8 per cent after reopening from a week-long holiday when global stocks recovered.
IMF Reports The International Monetary Fund on Wednesday warned officials to protect their financial systems from possible instability as the Fed prepares to raise interest rates, saying shocks or policy missteps risk derailing the global economy and triggering equity market selloffs. This followed a separate report this week in which the IMF cut its outlook for global growth this year to 3.1 percent from a July forecast of 3.3 per cent.
"Global concerns should curtail the rally in AUD and NZD," Elias Haddad, a Sydney-based currency strategist at Commonwealth Bank of Australia, wrote in a note. "The IMF warned in its October World Economic Outlook that the downside risks to global growth are now 'more pronounced' compared to a few months ago." The Bloomberg Dollar Spot Index was little changed at 1,201.64 from 1,201.15 in New York.
Keisuke Hino, a foreign-exchange trader at Mizuho Bank in New York, said the dollar was looking vulnerable, regardless of whether risk sentiment improves or deteriorates.
"Markets continue to take their cue from stocks and what they mean for the greenback," he said. "If it's dollar selling on risk improvement, then it will be sold against the Aussie, kiwi or other emerging currencies. If it's risk aversion, the dollar will be sold against the yen and the euro."