Australia, New Zealand Dollars Slip on Concern Over U.S. Rescue

By Candice Zachariahs

Sept. 25 (Bloomberg) -- The Australian dollar fell a second day against the greenback and yen as concern U.S. lawmakers will delay a rescue plan for banks damped investor appetite for higher-yielding assets. New Zealand's dollar dropped.

The currencies, favorites for so-called carry trades, slid as the Standard and Poor's 500 Index ended down after swinging between gains and losses more than 40 times. Federal Reserve Chairman Ben S. Bernanke said yesterday the U.S. is facing ``grave threats'' to financial stability.

``The markets are still digesting the rescue package in the U.S.,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The Australian and New Zealand dollars will remain within ranges today.''

The Australian dollar fell 0.4 percent to 83.47 U.S. cents at 10:51 a.m. in Sydney from 83.79 cents in late Asian trading yesterday. It declined 0.5 percent to 88.49 yen from 88.93.

New Zealand's currency weakened to 68.35 U.S. cents from 68.42 cents yesterday. It bought 72.47 yen from 72.64.

Sinton expects Australia's currency to trade between 82.95 and 83.95 U.S. cents and the Kiwi, as New Zealand's currency is called, to trade between 67.80 and 68.80 cents.

The currencies slipped as lawmakers in the U.S. balked at rubber-stamping the Treasury's $700 billion rescue plan for financial institutions. Democrats, who control both houses of the U.S. Congress, are demanding the proposals include support for homeowners and limits on executive pay.

U.S. stocks fell for a third day with two stocks retreating for each one that gained on the New York Stock Exchange. The S&P 500, which on Sept. 23 capped its biggest two-day slump in six years, extended its decline this week to 5.5 percent. The S&P/ASX 200 Index of Australian stocks slipped 0.9 percent.

Carry Trades

Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The currencies are favorites with investors using carry trades to seek higher returns using funds received in a country with low borrowing costs. The risk is that exchange-rate fluctuations erase profits.

Australian government bonds were little changed. The yield on the 10-year note fell 1 basis point, or 0.01 percentage point, to 5.698 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.061, or A$0.61 per A$1,000 face amount, to 96.503.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.995 percent today from 6.990 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net