Australian, New Zealand Dollars Slump to 2-Year Lows Versus Yen

By Chris Young

Sept. 5 (Bloomberg) -- The Australian and New Zealand dollars slumped to their lowest levels in more than two years against the yen as a slide in U.S. stocks spurred traders to sell higher-yielding assets financed in Japan's currency.

The currencies also fell to their weakest in more than a year against the U.S. dollar as concern global economic growth is slowing pushed down prices for commodities the nations sell. The Australian and New Zealand dollars declined the most since March against the yen as the Standard & Poor's 500 Index tumbled the most in three months, discouraging so-called carry trades.

``They're incredible moves, everything is working against the Australian and New Zealand dollars,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``There's U.S. dollar strength across the board, equity market weakness so carry-trade sentiment is poor, and because this means downward revisions to global growth, as commodity currencies they're also suffering.''

The Australian dollar fell 3.8 percent to 86.96 yen as of 9:51 a.m. in Sydney, from 90.40 yen late in late Asia. The currency has dropped 6.8 percent from a week ago, poised for its seventh weekly loss. It earlier touched 85.88 yen, the lowest since July 2006. The currency dropped 2 percent to 81.72 U.S. cents, after touching 81.03 cents, the weakest since August 2007.

New Zealand's dollar slumped 4.1 percent to 71.11 yen, reaching 69.96, the lowest since July 2006. It lost 2.7 percent to 66.64 U.S. cents, touching 65.94 cents, the least since November 2006.

Stocks Slide

Investors sold the Australian and New Zealand dollars and returned money borrowed in Japan as the S&P 500 slid 3 percent, the most since June 6, after an increase in U.S. jobless claims heightened concern the economic slump is deepening.

The Australian and New Zealand currencies, known as the Aussie and Kiwi, are favorites of so-called carry trades because the nations' benchmark interest rates are 7 percent and 8 percent, respectively, compared with 0.5 percent in Japan and the Federal Reserve's target of 2 percent.

In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. The risk to these trades is that currency moves may erase profits.

The Aussie extended its loss against the U.S. dollar this quarter to about 15 percent, the worst performer of the 16 most- traded currencies, and the Kiwi stretched its losses to almost 13 percent, the second-biggest drop, as the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities slid for a fifth day to its lowest since Feb. 13.

Bonds Gain

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

Australian government bonds gained, pushing the yield on the 10-year bond down 12 basis points, or 0.12 percentage point, to 5.65 percent, the lowest since March 2007, according to data compiled by Bloomberg. The price of the 5.25 percent bond maturing in March 2019 rose 0.898, or A$8.98 per A$1,000 face amount, to 96.885.

New Zealand's 6 percent bond due December 2017 rose for a third day, pushing the yield down 3 basis points to 5.93 percent, the lowest since April 2007.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.