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AUD/USD Drifts to 1.0365 as Cyprus Turmoil Damps Sentiment

The Australian and New Zealand dollars fell, halting two days of gains, after an unprecedented levy on Cypriot banks raised concern a new round in Europe’s debt crisis will damp demand for higher-yielding assets.

Australia’s currency touched a one-week low against the yen and local bonds rallied after Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. Losses in the so-called Aussie were limited before the Reserve Bank of Australia releases minutes of its latest meeting tomorrow.

“Aussie, kiwi opened this week’s trade quite a bit lower,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “Whilst there are no direct linkages between Australia, New Zealand and Cyprus, the currencies are reacting to changes in market sentiment. There could be some fears in the market that if another sovereign required a bailout, they may tax the deposits of that particular country as well.”

Bloomberg [1]

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