Australian Dollar Trades Near Four-Month Low; N.Z. Dollar Gains

By Ron Harui and Candice Zachariahs

Aug. 6 (Bloomberg) -- The Australian dollar traded near the lowest in four months as the yield advantage of the nation's two- year government bonds over U.S. Treasuries shrank to the least this year. The New Zealand dollar gained.

Australia's currency may weaken for a seventh day, its longest losing stretch in almost two years, as the prices of commodities the country exports such as gold and oil declined. New Zealand's currency rose to the highest in almost a month versus Australia's as the Reserve Bank of Australia signaled yesterday it may begin cutting interest rates.

``The Australian dollar is in a massive, massive negative channel at the moment, it's got no friends,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney. ``We've seen commodity prices go against it, interest-rate differentials go against it, the U.S. dollar is strengthening and oil prices are coming down.''

The Australian dollar traded at 91.89 U.S. cents as of 4:55 p.m. in Sydney from 91.85 cents late in Asia yesterday. It earlier reached 91.33 cents, the lowest since April 4. The currency, known as the Aussie, climbed to 99.63 yen from 99.07 yen yesterday when it slid 1.8 percent, the most since March.

The New Zealand dollar rose to NZ$1.2645 per Australian dollar from NZ$1.2685 late in Asia yesterday. It earlier touched NZ$1.2599, the strongest since July 10. The currency, also known as the kiwi, advanced to 72.62 U.S. cents from 72.40 cents. It strengthened to 78.74 yen from 78.09 yen.

Worst Performer

Australia's currency extended its decline in the past week to 2.5 percent, the worst performance among the 16 most-active currencies versus the U.S. dollar, as the difference in yield between local two-year bonds and similar-dated U.S. debt shrank to 3.44 percentage points, the narrowest since Dec. 7.

Traders are betting that the RBA will lower its benchmark rate by 0.87 percentage point in the next 12 months, up from 0.65 percentage point on Aug. 4, according to a Credit Suisse Group index based on swaps trading. Australian home-loan approvals fell to a four-year low in June, the statistics bureau said today, adding to signs the economy is cooling.

RBA Governor Glenn Stevens said yesterday that inflation may slow, allowing for a ``less restrictive stance'' on interest rates. The central bank left its benchmark interest rate unchanged at 7.25 percent, which compares with 8 percent in New Zealand, 2 percent in the U.S. and 0.5 percent in Japan.

The Australian dollar also weakened as prices slid for gold and crude oil, the nation's third and fourth most-valuable raw material exports. Gold dropped below $900 an ounce and crude oil fell below $119 a barrel to its lowest in three months. Commodity exports contribute 17 percent to the nation's $1 trillion economy.

Technical Charts

Losses in the Australian dollar may be limited as technical charts signaled the currency's 6.7 percent slide from a 25-year high on July 16 was excessive.

``Short term, it looks a bit overdone,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``The Aussie in three weeks has gone from 98.50 cents down to 91.30 cents, so we're starting to see some'' investors buying the currency to cover their wrong-way bets.

The Australian dollar's 14-day relative strength index versus the U.S. dollar was 24.21 according to data compiled by Bloomberg. A level below 30 signals losses may be excessive and can indicate the currency is about to change direction.

The New Zealand dollar gained for a sixth day against Australia's, the longest winning run since June 2007, on speculation the RBA will cut rates as soon as next month.

`Underpinned'

New Zealand's ``currency has been underpinned by solid interest to buy the kiwi against the Aussie,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``Over the past couple of days, we've seen an about- turn in Australian-dollar sentiment.''

The New Zealand dollar also gained after the nation's commodity export price index rose in July, led by beef, aluminum and lamb, ANZ National Bank Ltd. said yesterday. Sales of commodities make up 70 percent of the nation's overseas sales.

The New Zealand dollar has fallen 2.3 percent since the Reserve Bank of New Zealand cut its benchmark rate a quarter- percentage point to 8 percent on July 24 and signaled further reductions were likely.

Traders are betting the RBNZ will lower borrowing costs by 1.51 percentage points in the next 12 months, according to a Credit Suisse index.

Australian two-year government bonds rose for an 11th day, pushing the yield down 2 basis points to 5.98 percent. The price of the 5.25 percent security due August 2010 gained 0.040, or A$0.40 per A$1,000 face amount, to 98.633. A basis point is 0.01 percentage point.

New Zealand government debt declined. The yield on the benchmark 10-year note rose 3 basis points to 6.17 percent. The price of the 6 percent security maturing December 2019 fell 0.227 to 98.793.

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