Australian, N.Z. Dollars Fall as Japanese Investors May Sell

By Ron Harui and Candice Zachariahs

Aug. 13 (Bloomberg) -- Australia's dollar fell to a four- month low and New Zealand's dollar dropped to its lowest in almost a year against the yen as Japan's economy contracted last quarter and commodity prices slid.

Australia's dollar declined for a fourth day and New Zealand's dollar weakened for a second on speculation slowing growth in the world's second-largest economy will prompt Japanese investors to sell higher-yielding assets. The two currencies slipped against the U.S. dollar on concern earnings from Australian and New Zealand exports will decrease as the prices of gold, crude oil, lamb and lumber extended their slide.

``The yen is being bought as Japanese investors are unwinding long positions in higher-yielding currencies,'' said Nobuaki Tani, a currency dealer at Resona Bank Ltd. in Tokyo. ``Concerns over an economic slowdown and the ongoing slide in commodities are spurring them to repatriate those funds.''

The Australian dollar dropped to 94.11 yen, the lowest since April 16, before trading at 94.15 yen at 11:46 a.m. in Sydney from 96.29 yen late in Asia yesterday. The currency, known as the Aussie, also declined to 86.69 U.S. cents from 87.38 cents. It reached 86.62 cents, the weakest since Jan. 24.

The New Zealand dollar declined to 75.09 yen, the lowest since Aug. 17, 2007, before trading at 75.11 yen from 76.67 yen late in Asia yesterday. The currency, called the kiwi, also fell to 69.11 U.S. cents from 69.56 cents. It touched 68.96 cents, the weakest since Sept. 10.

Japan's Economy Shrinks

The Australian and New Zealand dollars were the second and third-worst performers among the 16 most-active currencies against the yen in Asian trading after the Cabinet Office said in Tokyo today that Japan's economy shrank an annualized 2.4 percent in the second quarter, bringing the country to the brink of its first recession in six years.

Japanese individual investors have reduced their holdings of the Australian and New Zealand dollars against the yen, Tokyo Financial Exchange data show. Net-long positions on the Aussie were 89,663 contracts yesterday, down from 89,908 contracts on Aug. 11, while net-long positions on the kiwi were 182,006 contracts, down from 187,293 contracts. The contracts are denominated in 10,000 units of the foreign currency.

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

The Aussie fell to its lowest in 6 1/2 months and the kiwi reached its weakest in 11 months versus the U.S. dollar after the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities slid for a third day. Raw materials account for 60 percent of Australia's exports, and sales of commodities make up 70 percent of New Zealand's overseas shipments.

Interest-Rate Bets

``Australia looks to be facing lower prices for the key commodities that it exports,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. ``That means less demand for the Aussie dollar, which would temper the pace of improvement in Australia's trade position.''

The Aussie has declined 8.1 percent against the U.S. dollar since the beginning of the month as investors bet that the Reserve Bank of Australia will reduce borrowing costs from a 12- year high of 7.25 percent to boost a slowing economy.

Traders expect the RBA to lower borrowing costs by 1.01 percentage points over the next 12 months, up from 0.96 percentage points yesterday, according to a Credit Suisse Group index based on interest-rate swaps. The RBA said Aug. 11 that a ``significant moderation'' in demand would slow inflation, making room for it to reduce rates.

Rate Cuts

The kiwi has lost 5.8 percent against the U.S. dollar this month as traders bet that the Reserve Bank of New Zealand will cut interest rates in coming months. The RBNZ lowered its benchmark rate by a quarter-percentage point to 8 percent on July 24, the first reduction in five years.

Investors are betting that the RBNZ will reduce its benchmark rate by 1.5 percentage points over the next 12 months, up from 1.49 percentage points yesterday, according to a Credit Suisse Group index based on interest-rate swaps.

Australia's 10-year government bonds climbed for a fifth day, pushing the yield down 3 basis points, or 0.03 percentage point, to 5.84 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.259, or A$2.59 per A$1,000 face amount, to 95.426.

New Zealand's government debt was little changed. The yield on the benchmark 10-year bond held at 6.19 percent, and the yield on the three-year security was unchanged from yesterday at 6.23 percent. 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