Australian, N.Z. Dollars Fall on Japan Economy, Commodities

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 the weakest in almost two years against the yen as commodity prices declined and a Japanese government report showed the economy contracted.

Australia's dollar dropped 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 spur Japanese investors to sell higher-yielding assets abroad. The currencies also fell against the U.S. dollar on concern that economic expansion in the South Pacific nations will slow as the prices of raw materials extended their slide.

``The yen is being bought against higher-yielding currencies by Japanese investors,'' said Masashi Kurabe, head of currency sales and trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong, a unit of Japan's largest publicly traded lender by assets. ``They are worried over slowing economies and interest-rate reductions in Australia and New Zealand.''

The Australian dollar slipped to 93.15 yen, the lowest since April 15, before trading at 94.29 yen as of 4:45 p.m. in Sydney from 96.29 yen late in Asia yesterday. The currency also declined to 86.82 U.S. cents from 87.38 cents. It reached 85.93 cents, the weakest since Jan. 23.

The New Zealand dollar declined to 73.99 yen, the lowest since Aug. 25, 2006, before trading at 75.17 yen from 76.67 yen late in Asia yesterday. The currency, called the kiwi, also fell to 69.23 U.S. cents from 69.56 cents. It touched 68.26 cents, the weakest since Aug. 17.

Worst Performers

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 Japan's Cabinet Office said the 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 so- called 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 South-Pacific currencies popular targets for international investors seeking higher returns.

Lower Prices

The Aussie fell to its lowest in 6 1/2 months and the kiwi reached its weakest in a year 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.

``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.''

Australia's currency has declined 8 percent against the U.S. dollar this month as investors bet the Reserve Bank of Australia will reduce borrowing costs from a 12-year high to support the slowing economy.

Traders expect the RBA to lower borrowing costs by 1.04 percentage points over the next 12 months, up from 0.96 percentage point 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 in August as traders bet the Reserve Bank of New Zealand will also cut interest rates to bolster economic growth. The RBNZ lowered its benchmark by a quarter-percentage point on July 24, the first reduction in five years.

Investors are betting the RBNZ will lower its key rate by 1.49 percentage points in the next 12 months, according to a separate Credit Suisse index.

Australia's 10-year government bonds advanced for a fifth day, pushing the yield down 2 basis points, or 0.02 percentage point, to 5.85 percent. The price of the 5.25 percent bond due March 2019 gained 0.160, or A$1.60 per A$1,000 face amount, to 95.327. Yields move inversely to prices.

New Zealand's 10-year government debt declined for a second day, pushing the yield up 1 basis point to 6.19 percent. The price of the 6 percent note due December 2017 fell 0.041, or NZ$0.41 per NZ$1,000 face amount, to 98.635.

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