Aussie Drops for Second Day on China Trade Data; Yuan Weakens

Australian dollar

The Australian dollar fell for a second day against the U.S. currency after China reported the biggest trade deficit in two years, cooling demand for higher-yielding assets.

The Aussie weakened versus all except two of its 16 major counterparts as Asian stocks and U.S. equity futures declined. China’s yuan dropped after the central bank lowered its reference rate for the currency by the most in 1 1/2 years. A gauge of foreign-exchange volatility was near the lowest in more than a year as Federal Reserve Bank of Philadelphia President Charles Plosser said encouraging economic data isn’t enough to change the pace of the central bank’s asset purchases.

“We’ve peeled back on the Aussie but it hasn’t really fallen back that far,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. “The Chinese data was sufficient to unnerve the Asian markets. In Europe, we’re seeing pretty low currency volatility and the markets seem quite hemmed in.”

The Aussie weakened 0.3 percent to 90.37 U.S. cents as of 7:04 a.m. in New York after advancing to 91.33 cents on March 7, the strongest since Dec. 11. The yen was little changed at 103.32 per dollar after gaining as much as 0.6 percent. Japan’s currency was also little changed versus the euro, at 143.34. The euro traded at $1.3871.

China Exports

China’s exports unexpectedly fell 18.1 percent in February from a year earlier, customs data showed March 8, compared with a forecast for an increase of 7.5 percent in a Bloomberg News survey. Imports rose 10.1 percent, leaving a trade deficit of $23 billion, the report showed.

The People’s Bank of China cut the yuan’s reference rate by 0.18 percent, the most since July 2012. The currency declined 0.2 percent to 6.1385 per dollar, according to China Foreign Exchange Trade System prices.

The Aussie has tumbled 13 percent in the past 12 months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted indexes, amid signs of a slowdown in China, Australia’s largest trading partner. The euro gained 6.9 percent, while the dollar dropped 0.5 percent.

U.S. employers added more workers in February than economists projected, the Labor Department said last week, indicating the economy is starting to recover from a weather-induced setback. The 175,000 increase in employment followed a revised 129,000 gain in January.

Improvement in the labor market is one reason the Fed has trimmed monthly bond purchases by $10 billion in each of its past two meetings. The central bank in January reduced monthly bond purchases to $65 billion.

“Given the fact that we’ve embarked on measured reductions, it’s important to give some certainty or at least clarity to the markets on what we’re doing,” Plosser said in a Bloomberg Television interview with Manus Cranny in Paris. “It’s OK to continue at 10 billion. The hurdle rate for change is pretty high in either direction.”

Deutsche Bank’s Currency Volatility Index, a gauge of future price swings, was at 7.33 percent after dropping to 7.25 percent on Feb. 25, the least since December 2012.