By Ron Harui and Tracy Withers
Aug. 11 (Bloomberg) -- The Australian dollar fell to the lowest in six months after the central bank signaled it may reduce interest rates as economic growth slows. The New Zealand dollar declined to near an 11-month low.
Australia's currency extended its slump from a 25-year high touched last month to 10 percent after the Reserve Bank of Australia said there will be more room to lower borrowing costs because a ``significant moderation'' in domestic demand will curb growth and push up unemployment. New Zealand's currency weakened for a fifth day after a government report showed house prices dropped for the first time in more than three years last month.
``This reiterates the statement last week that they want less restrictive monetary policy,'' said Masafumi Yamamoto, head of foreign-exchange strategy at Royal Bank of Scotland Group Plc in Tokyo. ``That means they want to show the intention of a near- term rate cut. There will be more rate cuts into next year in Australia and New Zealand. That will drive lower these currencies.''
The Australian dollar declined to 88.37 U.S. cents, the weakest since Jan. 31, before trading at 88.60 cents as of 4:40 p.m. in Sydney, from 88.85 cents in New York on Aug. 8. It rose as high as 98.49 cents on July 16.
New Zealand's dollar dropped 0.5 percent to 70.09 U.S. cents from 70.45 cents late in New York trading on Aug. 8, when the currency fell as low as 69.83 cents, the weakest since Sept. 12, 2007.
Traders are certain the RBA will cut its overnight cash rate target of 7.25 percent by at least a quarter-percentage point at its next meeting on Sept. 2, according to a Credit Suisse Group index based on interest-rate swaps.
`Fairly Slow'
``Economic growth will be fairly slow in the period ahead,'' the RBA said in its quarterly policy statement released in Sydney today. Gross domestic product will probably expand 2 percent this year compared with 4.3 percent in 2007 and less than the 2.25 percent forecast by the bank in May, the RBA said.
``With the Reserve Bank of Australia likely to cut interest rates in coming months, the Australian dollar has clearly peaked and further falls are likely over the next six months,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note.
The nation's largest bank by assets lowered its forecasts for the Australian dollar by ``bringing forward by a quarter the fall we were already forecasting over the next six to nine months,'' Kyriakopoulos wrote.
The local dollar is likely to trade at 90 cents by the end of September and at 88 cents by year-end, compared with previous predictions of 93 cents and 90 cents, the NAB note said.
`Firmer U.S. Dollar'
The Australian and New Zealand dollars were two of 13 among the 16 most-traded currencies that fell against the U.S. dollar as an escalation in the armed conflict between Russia and Georgia encouraged safe-haven flows into U.S. assets.
The New Zealand dollar extended its five-day loss to 3.6 percent as the signs of slowing economic growth boosted speculation the Reserve Bank of New Zealand will cut rates further to support economic growth.
``The combination of a firmer U.S. dollar and concerns about a sharp slowdown in the New Zealand economy should ensure bounces in the New Zealand dollar are limited,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``Initial support is seen ahead of 69.85 cents, but a deeper pullback'' to between 69 cents and 69.50 cents is likely in coming weeks, she said.
The kiwi was the worst performer of the 16 major currencies as average home prices fell 2.2 percent from a year earlier, Quotable Value New Zealand Ltd., the government valuation agency, said in a report released in Wellington today. That was the first decline since the monthly series began in February 2005.
Government Bonds
New Zealand's central bank cut rates last month by a quarter-percentage point to 8 percent, its first reduction in five years. The RBNZ may lower borrowing costs by 1.5 percentage points in the next 12 months, up from 1.49 percentage points a week earlier, according to a Credit Suisse Group index based on interest-rate swaps.
Australian two-year government debt fell, pushing the yield up 1 basis point to 5.93 percent. The price of the 5.25 percent bond due August 2010 declined 0.016, or A$0.16 per A$1,000 face amount, to 98.737. A basis point is 0.01 percentage point.
New Zealand's three-year government bonds declined, pushing the yield up 3 basis points to 6.22 percent. The price of the 6 percent security due November 2011 dropped 0.078, or NZ$0.78 per NZ$1,000 face amount, to 99.361.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net.
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