Australia, New Zealand Dollars Drop on Global Recession Concern

By Candice Zachariahs

Oct. 16 (Bloomberg) -- The Australian and New Zealand dollars fell the most since Oct. 8, when they plunged to five- year lows versus the greenback, as equities and commodities tumbled on concern the world is sliding into recession.

The currencies fell a second day against the U.S. dollar and Japan's yen as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials lost 4.7 percent. U.S. stocks slid the most since the 1987 crash, hammered by the biggest retail sales drop in three years. Raw materials make up 60 percent of Australia's exports and 70 percent of New Zealand's.

``Sentiment's pretty bad on the Australian dollar and we probably will retest the lows,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``The unavoidable recession in the U.S., Europe and probably Japan suggests that downward pressure will remain on the Aussie dollar as global growth estimates continue to get revised down,'' he said referring to the currency by its nickname.

The Australian dollar dropped 6.3 percent to 66.17 U.S. cents as of 7:50 a.m. in Sydney, from 70.60 cents late in Asian trading yesterday. On Oct. 8, the Aussie plunged as much as 9.8 percent to a five-year low of 64.51. New Zealand's dollar slid 3.7 percent today to 60.05 cents from 62.38 cents. On Oct. 8 it touched 57.92 cents, also the lowest since 2003.

Australia's dollar dropped 7.8 percent to 66.08 yen, from 71.67 yesterday. It touched 63.75 yen Oct. 8, the weakest since 2002. New Zealand's currency was 5.3 percent lower at 59.94 yen from 63.33 yesterday.

The currencies slid as Exxon Mobil Corp. and Chevron Corp. tumbled more than 12 percent after commodity prices declined on concern slowing economies will hurt demand. Crude oil, Australia's fourth most-valuable commodity export, fell below $75 for the first time in more than a year.

The South Pacific nations' dollars also declined as 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 near a record yesterday.

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