By Ron Harui and Tracy Withers
Sept. 1 (Bloomberg) -- Australia's dollar dropped to a four-month low against the yen and New Zealand's dollar fell to the lowest in two weeks as a slide in U.S. and Asian stocks prompted investors to pare holdings of higher-yielding assets.
The two currencies, favorites of so-called carry trades, declined for a second day after crude oil futures increased as Hurricane Gustav entered the Gulf of Mexico. The Australian dollar slipped to near its lowest in almost a year versus the U.S. currency on speculation Reserve Bank of Australia policy makers will cut interest rates when they meet tomorrow.
``Investors are shunning risk by unwinding carry trades,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The trends for the Australian and New Zealand dollars are to the downside.''
The Australian dollar declined 1 percent to 92.41 yen as of 4:40 p.m. in Sydney from 93.36 yen late in New York on Aug. 29. It reached 92.40 yen, the weakest since April 2. The currency, known as the Aussie, fell 0.5 percent to 85.35 U.S. cents from 85.78 cents.
The New Zealand dollar dropped 1.1 percent to 75.38 yen from 76.25 yen late last week. It reached 75.31 yen, the lowest since Aug. 14. The currency, called the kiwi, lost 0.6 percent to 69.64 U.S. cents from 70.05 cents.
The currencies also weakened for a second day against the U.S. dollar as crude oil for October delivery rose as much as 2.2 percent to $118 a barrel in electronic trading on the New York Mercantile Exchange.
Hurricane Gustav
Gustav, downgraded to a Category 3 storm by the National Hurricane Center in Miami yesterday, may strengthen to Category 4 later today and will make landfall as a ``major'' hurricane, according to the U.S. National Hurricane Center.
The storm shut three-quarters of oil output in the region and refineries operated by Valero Energy Corp., ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp.
The Aussie and the kiwi are favorites for carry trades because the nations' benchmark interest rates are 7.25 percent and 8 percent, respectively. Those compare with 0.5 percent in Japan and 2 percent in the U.S. In the strategy, investors get funds in a country with low borrowing costs and invest in one with higher rates, earning the spread between the two. The danger is that currency market moves erase those profits.
``The risk aversion story has weakened the Australian dollar,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney. ``Carry trade sentiment has been hurting it.''
Australia's currency will trade between 85.25 and 87.50 cents this week, Kyriakopoulos said.
Australian Economic Data
Australia's currency remained lower after consumer prices rose 4.2 percent from a year earlier, down from 4.6 percent in the 12 months through July, according to a monthly gauge released today by TD Securities Ltd. and the Melbourne Institute in Sydney.
The Bureau of Statistics also said today that the nation's current-account deficit narrowed to A$12.77 billion ($10.9 billion) in the second quarter from a revised A$19.84 billion in the first quarter. The median estimate of 24 economists surveyed by Bloomberg News was for a trade shortfall of A$11.65 billion.
Traders are certain Reserve Bank of Australia policy makers will lower their interest rate by a quarter-percentage point when they meet tomorrow, according to interest-rate futures trading on the Sydney Futures Exchange.
New Zealand's dollar extended the past five days of losses to 1.3 percent as the MSCI Asia-Pacific Index of regional shares slipped 2.1 percent after the Standard & Poor's 500 index fell 1.4 percent on Aug. 29.
Government Bonds
The kiwi-yen and the MSCI Asia-Pacific Index had a correlation of 0.82 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they moved in lockstep.
The kiwi also declined on expectations that Reserve Bank of New Zealand Governor Alan Bollard will cut rates at his next review on Sept. 11 as the economy slows. Fourteen of 15 economists surveyed by Bloomberg News expect a quarter- percentage point cut and one expects a half-point reduction.
Australian government bonds gained for a second day. The yield on the 10-year bond fell 3 basis points, or 0.03 percentage point, to 5.73 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.225, or A$2.55 per A$1,000 face amount, to 96.242. Yields move inversely to prices.
New Zealand government bonds rose, pushing the yield on the three-year note down 2 basis points to 6.05 percent. The price of the 6 percent security due in November 2011 rose 0.062, or NZ$0.62 per NZ$1,000 face amount, to 99.844.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net
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