Australian Dollar Down as Greek Poll Looms

 
  By Ross Kelly 
 

        SYDNEY--The Australian dollar lost ground Thursday, weighed by a wider-than-expected national trade deficit, although attention largely remains focused on the looming weekend referendum in Greece.
        At 0700 GMT, the Australian dollar was trading at US$0.7635, compared with US$0.7716 the same time a day earlier, after flirting with US$0.7600 at the start of the week.
        Greece holds a referendum Sunday to decide whether to accept creditors' demands, likely determining whether the country stays in the eurozone. Financial markets have so far weathered the uncertainty reasonably well, indicating investors are pricing in a decent likelihood of a "yes" vote, or at least hoping for limited global repercussions if Greece is ultimately cut loose.
        "Even though Australia is more vulnerable to overseas developments now that the mining boom is over, it's just not very exposed to what's happening in Greece and the eurozone," said Paul Dales, an economist at Capital Economics, noting Australia's banks have nominal exposure to Greece.
        To be sure, few can confidently predict what will happen if there's a "no" vote on the weekend.
        "If the Reserve Bank of Australia finds itself debating whether or not to cut interest rates further to support the domestic economy, a crisis in Europe could prompt it to act sooner rather than later," Mr. Dales said.
        Australian interest rates are sitting at a record low 2.0%, and while the RBA has indicated it is reluctant to further fan a hot housing market, it hasn't ruled out another cut to buttress the economy.
        Australia's trade deficit in May was A$2.75 billion, narrowing from a record A$4.14 billion deficit in April, but missing the A$2.20 billion figure expected by economists. The shortfall came amid a 4% slump in imports, underpinned by weakening demand for capital goods, such as heavy machinery for mining. On a positive note, a modest recovery in still-volatile iron-ore prices helped push up the value of overall exports by 1%.
        The May reading sets the scene for a deficit over the entire June quarter of around A$10 billion--compared with A$4.5 billion for the March quarter, said Andrew Hanlan, senior economist at Westpac. "That is a sizeable quarter-on-quarter deterioration and will represent a headwind to growth in the period."
        The Australian dollar fell by around a tenth of a cent immediately after the release of the deficit figures, then briefly recovered, only to weaken again at the end of the day.
        Write to Ross Kelly at ross.kelly@wsj.com
        (END) Dow Jones Newswires

        July 02, 2015 03:16 ET (07:16 GMT)

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