N.Z. Dollar Falls to 11-Month Low After House Prices Decline

By Ron Harui and Tracy Withers

Aug. 11 (Bloomberg) -- The New Zealand dollar fell to an 11-month low after a government report showed house prices dropped for the first time in more than three years in July, adding to signs of slowing economic growth.

The currency declined for a fifth day, its longest losing streak since June 10, on speculation the Reserve Bank of New Zealand will cut interest rates next month to support the economy. New Zealand's dollar, known as the kiwi, also weakened as an escalation in armed conflict between Russia and Georgia spurred safe-haven flows into U.S. assets.

``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.

New Zealand's dollar dropped 0.5 percent to 70.12 U.S. cents at 12:13 p.m. in Wellington from 70.45 cents in late New York trading Aug. 8, when the currency fell as low as 69.83 cents, the weakest since Sept. 11, 2007.

The kiwi was the worst performer among the 16 most-active currencies against the U.S. dollar today 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's the first decline since the monthly series began in February 2005.

Georgia, Russia

The Treasury Department said last week the economy was probably in a recession in the first half of 2008 and won't start growing until the fourth quarter. The RBNZ last month lowered borrowing costs for the first time in five years, and may cut rates by 1.48 percentage points to 8 percent within a year, according to a Credit Suisse Group index based on swaps.

Georgia withdrew troops from South Ossetia after four days of fighting with Russian forces, while warplanes from another region Abkhazia attacked Georgian positions. Russian troops entered Ossetia in what it said was a response to Georgia's assault on Russian citizens. CNN reported that the Russian Black Sea fleet has been mobilized and that Russian troops attacked an airport at Tbilisi, the Georgian capital.

New Zealand's government bonds gained. The yield on the benchmark 10-year note fell 1 basis point, or 0.01 percentage point, to 6.16 percent. The price of the 6 percent security maturing in December 2017 rose 0.087 to 98.881. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net