Australian, New Zealand Dollars Slip, as Rescue Plan Progresses

By Candice Zachariahs
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Sept. 29 (Bloomberg) -- The Australian dollar fell for a second day and New Zealand's currency slipped after U.S. lawmakers reached an agreement on a bank rescue plan, reviving confidence in the U.S. currency. Australian bonds fell.

The currencies pared earlier gains as the U.S. dollar rose to a one-week high against the euro and advanced against the yen as lawmakers said the U.S. Congress may consider the $700 billion plan today and vote on it Oct. 1.

``The only real issue is what U.S. politicians are going to end up deciding on,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. ``After a while the idea will sink in that the world economic outlook is still weak and that's bad news for the Aussie,'' he said referring to the currency by its nick-name.

The Australian dollar fell 0.7 percent to 82.51 U.S. cents at 4:22 p.m. in Sydney from 83.11 cents in New York on Sept. 26. It declined to 87.68 yen from 88.10 in New York.

New Zealand's dollar slid 0.5 percent to 68.26 cents from 68.60 cents late last week. It bought 72.53 yen from 72.72 yen.

U.S. Rescue

The currencies declined against the dollar after President George W. Bush and congressional leaders said they reached an agreement that will give Treasury Secretary Henry Paulson an immediate $250 billion to buy bad loans, with the rest to be doled out in stages.

``I am confident this legislation gives us the flexibility to unclog our financial markets,'' Paulson said in en e-mailed statement.

``A generally firmer U.S. dollar should limit the topside'' for the Australian and New Zealand dollars, said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's annual trade deficit narrowed for a third straight month in August as a falling currency and record oil shipments buoyed exports. The currency has lost 14.5 percent against the U.S. dollar over the past six months.

The gap narrowed to NZ$4.28 billion ($2.9 billion) in the 12 months ended Aug. 31 from NZ$4.48 billion in the year through May, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of eight analysts was for a NZ$4.43 billion shortfall.

Bonds Decline

Australian government bonds declined.

``We're seeing government bond markets weaken up a little bit as we hear good news on this legislation in the States,'' said Sally Auld, interest rate strategist at JP Morgan Securities Australia Ltd. ``That's unwinding a little bit of that risk premium that was in fixed income.''

The yield on the 10-year note rose 4 basis points, or 0.04 percentage point, to 5.655 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.321, or A$3.21 per A$1,000 face amount, to 96.833.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.81 percent today from 6.93 on Sept. 26.

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