Australian, New Zealand Currencies Decline This Week on Rates

By Lilian Karunungan and Candice Zachariahs

Aug. 15 (Bloomberg) -- The Australian dollar fell, taking its loss from a 25-year high reached a month ago to 12 percent, as prices of commodities slid and traders bet on lower interest rates. The New Zealand dollar dropped for a fifth week.

The Australian currency posted its fourth weekly decline, the longest losing streak since October 2006, as gold, the nation's third most-valuable raw material export, slumped almost 8 percent. New Zealand's dollar traded near a 12-month low against the U.S. dollar and the weakest in almost two years versus the yen as concern that global economic growth will slow spurred investors to sell higher-yielding assets.

``The pressure will be on the downside'' for the Australian and New Zealand dollars, said Brian Redican, senior market economist at Macquarie Group Ltd. in Sydney. ``Commodity prices have pulled down from their peaks and also their central banks are now cutting interest rates.''

Australia's dollar fell 1.4 percent to 86.35 U.S. cents at 4:39 p.m. in Sydney from 87.61 cents late in Asia yesterday, and 88.85 cents in New York a week ago. It dropped to 85.93 cents on Aug. 13, the weakest since Jan. 23.

The currency dropped to 95.15 yen from 96.10 yen yesterday. It has slipped 2.8 percent this week, its fourth weekly decline.

Interest-Rate Bets

New Zealand's dollar declined 0.7 percent to 69.69 U.S. cents in Wellington, from 70.14 cents late in Asia yesterday and 70.45 a week ago in New York. It touched 68.26 cents on Aug. 13, the lowest since Aug. 17, 2007. The currency has fallen 1.1 percent this week.

The kiwi, as the New Zealand currency is known, bought 76.79 yen, from 76.95 yen in Asia yesterday. It lost 1.1 percent this week.

The Australian dollar, or Aussie, is the worst performer among the 16 most-traded currencies in the past month and has fallen from a 25-year high of 98.49 cents touched July 16 as investors began to bet on lower borrowing costs.

Reserve Bank of Australia Deputy Governor Ric Battellino said yesterday the central bank ``is in a position to consider'' cutting interest rates even before inflation slows.

``With the RBA reinforcing market expectations that they are likely to start lowering the official cash rate as soon as September, we remain bearish,'' Deutsche Bank AG currency strategists including London-based Bilal Hafeez and Sydney-based John Horner, wrote in a research note yesterday. ``We continue to target a fall to 85 cents on this move.''

Traders are betting the RBA will lower its benchmark rate of 7.25 percent by 1.1 percentage points over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps. A month ago they were betting on no change.

Forecast Change

Goldman Sachs Group Inc. revised its forecast for the Australian and New Zealand dollars, saying they faced challenges on the ``domestic front from slowing activity.'' The firm now expects the Australian currency to buy 86 cents in three months, compared with a pervious forecast of 96 cents, and the New Zealand currency to trade at 68 cents compared with an earlier forecast of 73 cents.

Australia's dollar has fallen 8.5 percent versus the dollar through August as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials dropped 6.3 percent.

The New Zealand dollar had its longest weekly losing streak since May 2007 as investors bet that lower interest rates would make the country's assets less attractive.

``The New Zealand dollar has been affected by the momentum of the carry trade,'' said Alex Sinton, a senior currency trader at ANZ National Bank Ltd. in Auckland. ``Economically there are still factors that weigh on the kiwi.''

Carry Trades

The currency has dropped almost 10 percent versus the U.S. dollar over the past month after the Reserve Bank of New Zealand reduced borrowing costs to 8 percent on July 24 and signaled more cuts ahead. The Treasury Department said Aug. 4 the nation probably contracted in the second quarter, pushing New Zealand into its first recession in a decade.

New Zealand's benchmark interest rate compares with 2 percent in the U.S. and 0.5 percent in Japan, making its currency a favorite target for carry trades.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the rates. The risk is that currency market moves can erase those profits.

Australia's 10-year government bonds gained for a ninth week, the longest winning run in a year. The yield on the benchmark note dropped 8 basis points from last week, or 0.08 percentage point, to 5.85 percent. The price of the 5.25 percent security due March 2019 rose 0.571, or A$5.71 per A$1,000 face amount, to 95.315.

New Zealand's three-year government debt declined for a fifth week, with the yield rising 6 basis points to 6.25 percent.

To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net