Australia, N.Z. Dollars Drop as Bailout Stalls, Commodities Dip

By Tracy Withers and Candice Zachariahs

Sept. 30 (Bloomberg) -- The Australian and New Zealand dollars dropped to the lowest in more than a week after U.S. lawmakers rejected the $700 billion rescue for the financial sector, prompting investors to sell higher-yielding assets.

Australia's currency slid the most in three weeks versus the yen as the Dow Jones Industrial Average tumbled to its biggest point drop ever, curbing investor appetite for buying the nation's assets with funds from Japan. The Australian and New Zealand currencies also fell against the U.S. dollar as prices of commodities the two nations export dropped.

``Heavy losses in financial stocks sent global equities sharply lower and the rejection of the proposed banking bailout plan simply exacerbated the losses,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``As investors bailed out of risky assets, growth-sensitive currencies were sold heavily.''

The Australian dollar fell 2.1 percent to 79.76 U.S. cents at 7:43 a.m. in Sydney, the lowest since Sept. 19, from 81.50 cents in late Asian trading yesterday. The currency tumbled 3.7 percent to 83.40 yen.

New Zealand's dollar slid 1.2 percent to 66.77 cents from 67.60 cents yesterday. It dropped 3 percent to 69.66 yen.

Rescue Plan Vote

The currencies tumbled as the U.S. House of Representatives voted 228 to 205 against authorizing the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad powers to buy troubled assets from financial companies.

The Standard & Poor's 500 Index slid the most since the 1987 crash. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 46.72 yesterday, its highest close since October 1998.

The Reserve Bank of Australia and the Federal Reserve agreed to expand swap lines to boost the availability of U.S. dollars amid the global credit crunch. The Fed will pump $20 billion through the RBA to ``address year-end funding issues,'' Australia's central bank said in a statement on its Web site today. The funding is in addition to $10 billion injected last week.

The Australian and New Zealand dollars also fell after prices weakened for commodities the nations export on concern that the U.S. financial crisis will stall global growth. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped by a record. Crude oil, Australia's fourth most-valuable raw material export, fell the most in almost seven years in New York yesterday.

Raw materials account for 60 percent of Australia's exports, and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.

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