Australian, New Zealand Dollars Slide as U.S. Stocks Tumble

By Candice Zachariahs

Sept. 16 (Bloomberg) -- The Australian and New Zealand dollars dropped to the weakest in more than two years against the yen as tumbling U.S. stocks reduced investor appetite for the South Pacific nations' higher-yielding assets.

The currencies also fell against the U.S. dollar after the Standard & Poor's 500 Index had its steepest decline since the September 2001 terrorist attacks on concerns Lehman Brothers Holdings Inc.'s bankruptcy will be followed by other financial institutions failing. American International Group Inc. sank 61 percent and Washington Mutual Inc. dived 27 percent.

``Safe haven and risk aversion are key and that's why the yen has gained pretty much across the board,'' said Tony Morriss, a senior currency strategist with ANZ Banking Group Ltd. in Sydney. ``As this crisis rolls on, the Aussie and Kiwi will lose more ground to safer currencies,'' he said, referring to the currencies by their nicknames.

The Australian dollar fell 2 percent to 83.31 yen at 8:57 a.m. in Sydney, from 84.91 in late Asian trading yesterday. The currency earlier reached 83.09 yen, the weakest since March 2006. It fell 1.1 percent to 79.70 U.S. cents from 80.62 yesterday.

New Zealand's currency declined to 68.23 yen, the lowest level since May 2006, from 69.20 yen late in Asia yesterday. It bought 65.45 U.S. cents from 65.71.

The Australian dollar dipped below 80 U.S. cents as Lehman filed for the biggest bankruptcy in history yesterday after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York-based bank.

Volatility

The currencies slid after 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 31.70 yesterday, the highest since March 17.

Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them favorites with investors seeking higher returns. The risk in such trades is that currency market moves can erase profits.

Australian government bonds gained. The yield on the 10- year note fell 5 basis points, or 0.05 percentage point, to 5.522 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.387, or A$3.87 per A$1,000 face amount, to 97.855. Bond yields move inversely to prices.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.79 percent, its lowest since April 2006, from 6.84 on Sept. 12.

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