Australian, New Zealand Dollars Slump Versus U.S. Currency, Yen

By Candice Zachariahs

Sept. 9 (Bloomberg) -- The Australian and New Zealand dollars slumped as stock losses encouraged investors to pare holdings of higher-yielding assets.

The local dollars, favorites of so-called carry trades, were near two-year lows against the yen on concerns a U.S. takeover of Fannie Mae and Freddie Mac won't end losses at banks or avert a global slowdown. The Australian dollar also dropped to its lowest in 13 months against the U.S. currency as a government report showed home loans dropped for a sixth month.

The Australian and New Zealand dollars ``tend to be driven by risk appetite,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``If equities are falling in this region it's unlikely to be helpful.''

The Australian dollar fell 0.9 percent to 81.13 U.S. cents at 4:48 p.m. in Sydney, from 81.82 in late Asia yesterday. It earlier touched 80.23 cents, the lowest since August 2007. It slid 2 percent to 87.29 yen, near a two-year low touched Sept. 5.

The New Zealand dollar fell 0.3 percent to 67.08 U.S. cents from 67.30 cents yesterday, near the lowest since November 2006 reached last week. It slumped 1.6 percent to 72.11 yen.

Australia's dollar will drop to between 75 and 78 cents in the next few months, Gibbs forecast.

Stocks, Carry Trades

The local dollars were the weakest among the 16 most-traded currencies as the MSCI Asia-Pacific Index of regional shares lost more than 2 percent, led by banks. Wells Fargo & Co., the biggest bank on the U.S. West Coast, said yesterday it may have to write down most of its $480 million stakes in Fannie Mae and Freddie Mac.

``This package is unlikely to perfectly solve the current financial problems in the U.S.,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, the world's third-largest foreign-exchange trader. ``There remains risk aversion. The yen is appreciating against most currencies,'' including the Australian and New Zealand dollars, he said.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates. The risk is that currency market moves erase those profits. Borrowing costs 7 percent in Australia and 8 percent in New Zealand, compared with 0.5 percent in Japan.

The Australian dollar extended losses after a government report showed home loans fell for a sixth month in July and an industry report showed business confidence held close to the lowest level in seven years, stoking speculation economic growth will slow.

Australian government bonds gained. The yield on the 10- year note fell 15 basis points, or 0.15 percentage point, to 5.61 percent. The price of the 5.25 percent bond maturing in March 2019 rose 1.169, or A$11.69 per A$1,000 face amount to 97.071. Bond yields move inversely to prices.

New Zealand government debt rose. The yield on the 10-year benchmark bond fell 3 basis points to 5.97 percent. The price of the 6 percent security due in December 2017 increased 0.206, or NZ$2.06 per NZ$1,000 face amount, to 100.214.

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