Australian, N.Z. Dollars Fall on Concern Losses to Slow Growth

By Ron Harui and Candice Zachariahs

July 29 (Bloomberg) -- The Australian dollar fell to near its lowest in more than two weeks and the New Zealand dollar traded close to a six-month low on concern global credit-market losses will hinder growth in the South Pacific economies.

Australia's currency declined after the International Monetary Fund said yesterday deteriorating credit conditions will prolong a slowdown in global expansion. Australia & New Zealand Bank Ltd. yesterday joined National Australia Bank Ltd. in boosting provisions for delinquent loans. New Zealand's dollar may add to its 1.7 percent decline this month after home- building approvals slumped to the lowest in almost 22 years.

``Financial risks make the Australian dollar look expensive,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Sydney. ``The currency is running out of positives. Banks are central to the economy so when they have bad debts it will impact domestic economic activity.''

The Australian dollar declined to 95.81 U.S. cents at 11:58 a.m. in Sydney from 95.91 cents late in Asia yesterday. Should the currency, known as the Aussie, close below 95.40 cents, it will signal further losses toward 90 cents in coming months, Pontikis said. The Aussie bought 102.88 yen from 103.23 yen.

The New Zealand dollar traded at 74.51 U.S. cents from 74.50 cents late in Asia yesterday. It touched 73.87 cents on July 25, near its Jan. 22 low of 73.85. The currency, known as the kiwi, bought 80.01 yen, compared with 80.20 yen.

IMF's Report

Australia's currency fell after the IMF's Global Financial Stability Report released in Washington said banks' balance sheets were under ``renewed stress'' and raising capital would be more difficult as bank equity had ``fallen sharply.'' The IMF, which a year ago failed to foresee the depth of the subprime mortgage collapse, stood by its April forecast for about $1 trillion in losses stemming from the U.S. mortgage crisis.

Australia & New Zealand Bank said yesterday provisions for bad loans are likely to be about A$1.2 billion ($1.1 billion) in the second half of 2008. National Australia Bank last week set aside A$830 million for potential mortgage-related losses. National Australia Bank also said yesterday about 70 percent of investors in its A$850 million bond sale have withdrawn.

New Zealand's dollar traded near its lowest for the year after Statistics New Zealand said in Wellington today that home- building approvals slipped 20 percent in June from May to 1,337, the lowest since October 1986. Fewer building approvals suggest residential construction is contracting, backing the case for the Reserve Bank of New Zealand to cut interest rates.

``It's a weak number, which should weigh on the New Zealand dollar, but as there is a 100 percent probability of a September RBNZ rate cut discounted, downside has been limited for now,'' said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney.

`Interest-Rate Differentials'

The odds that the RBNZ will lower its 8 percent benchmark interest rate a quarter-percentage point at its September meeting was 100 percent, a Credit Suisse Group index based on interest-rate swaps showed.

Losses in the Australian and New Zealand dollars may be limited on speculation investors will keep buying higher- yielding assets in the two countries. The difference in yield between 10-year Australian and Japanese government bonds widened to 4.73 percentage points from 4.68 points yesterday.

``Yields in Australia and New Zealand are still attractive based on interest-rate differentials,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The Aussie and the kiwi are likely to be bolstered.''

Benchmark interest rates of 7.25 percent in Australia and 8 percent in New Zealand compare with 2 percent in the U.S. and 0.5 percent in Japan, making them popular destinations for international investors seeking higher returns.

Government Bonds

Australian 10-year government debt ended four days of gains. The yield on the 10-year security rose 2 basis points, or 0.02 percentage points, to 6.27 percent. The price of the 5.25 percent bond maturing in March 2019 fell 0.139, or A$1.39 per A$1,000 face amount, to 92.154.

New Zealand's government bonds were little changed. The yield on the 6 percent note maturing in December 2017 was unchanged from yesterday at 6.18 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.