Australia, N.Z. Dollars Head for Weekly Drop on Growth Concerns

By Ron Harui and Candice Zachariahs

Aug. 1 (Bloomberg) -- The Australian dollar headed for a second weekly decline and the New Zealand dollar fell for a third on concern slowing economic growth will prompt the nations' central banks to cut interest rates.

Australia's dollar dropped to a seven-week low after manufacturing contracted for a fourth month in July, spurring traders to bet the central bank will trim borrowing costs. New Zealand's dollar slid to a 10-month low after business confidence weakened in July for the first time in four months.

``Activity data has been considerably weaker in recent weeks and months,'' said Besa Deda, acting chief economist and strategist at St. George Bank Ltd. in Sydney. ``That has really seen the case for rate cuts build. In the short term, I wouldn't be surprised if the Aussie tries and tests 92 cents,'' she said, referring to the currency by its nickname.

Australia's dollar dropped to 93.76 U.S. cents at 4:45 p.m. in Sydney from 94.39 cents late in Asia yesterday and 95.62 cents in New York on July 25. It earlier reached 93.58 cents, the lowest since June 13. The currency slipped to 100.76 yen from 102.15 yen yesterday and 103.11 yen in New York last week.

New Zealand's currency fell to 72.78 U.S. cents from 73.33 cents late in Asia yesterday and from 74.18 cents in New York on July 25. It earlier touched 72.72 cents, the lowest since Sept. 19. It dropped 3.7 percent last month. The currency declined to 78.25 yen from 79.35 yen yesterday and 80.01 yen in New York a week ago. It weakened 2.1 percent in July.

Economic Reports

The Aussie extended the past week's loss to 2 percent after PricewaterhouseCoopers and the Australian Industry Group said in Canberra today the performance of manufacturing index fell to 46.9 in July, the lowest since November 2005.

Benchmark interest rates are 7.25 percent in Australia and 8 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., making them a favorite with investors looking to invest in higher-yielding assets.

Traders are betting the Reserve Bank of Australia will lower borrowing costs by 75 basis points, or 0.75 percentage point, in the next 12 months, up from 52 basis points yesterday, according to a Credit Suisse Group index based on interest-rate swaps.

The Australian dollar may fall to 100.25 yen, based on charts used to predict price movements, said Pak Lai Ng, a technical analyst at Forecast Pte in Singapore.

Losses in the Aussie versus the yen may accelerate as its daily momentum indicators such as the moving average convergence- divergence, or MACD, and the relative strength index are signaling the currency's 12.2 percent rally since March 21 has probably ended, Ng said.

`Bearish Divergence'

``All of the indicators are showing bearish divergence,'' Ng said. ``We see the Aussie coming off.''

The New Zealand dollar, known as the kiwi, extended this week's decline to 1.9 percent as signs of cooling economic expansion encouraged traders to increase wagers that the Reserve Bank of New Zealand will keep cutting rates.

``Concern about a sharp slowdown in the New Zealand economy continues to take a toll on the currency,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``The deteriorating fundamental picture suggests the risk of a deeper correction in the New Zealand dollar over the coming weeks is building.''

ANZ National Bank Ltd. reported yesterday that a net 43.2 percent of companies expect the economy will worsen over the next 12 months, compared with 38.7 percent in June, saying the economy was ``firmly in contraction mode.''

Mortgages Frozen

RBNZ Governor Alan Bollard lowered the official cash rate a quarter-percentage point to 8 percent on July 24, the first reduction in five years. Two days ago, Bollard said the central bank had ``adopted an easing bias in our monetary policy'' as a weak economy is ``sufficient'' to slow inflation.

Traders are betting the RBNZ will cut its benchmark interest rate by 150 basis points in the next 12 months, up from 135 basis points a week earlier, according to a Credit Suisse Group index based on interest-rate swaps.

Australia's government bonds headed for a weekly gain. The yield on the benchmark 10-year note fell 14 basis points to 6.12 percent from 6.26 percent on July 25. The price of the 5.25 percent security due March 2019 rose 1.017, or A$10.17 per A$1,000 face amount, to 93.256 from 92.239 a week earlier.

New Zealand's government debt declined this week. The yield on the 10-year note rose 1 basis point to 6.11 percent from 6.10 percent on July 25. The price of the 6 percent security due December 2017 fell 0.065 to 99.235 from 99.300 last week. 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