Australia, New Zealand Dollars Fall as Stocks, Commodities Drop

By Candice Zachariahs

Oct. 15 (Bloomberg) -- The Australian and New Zealand dollars fell as stocks and commodity prices declined on concern a $3 trillion effort to shore up the global financial system will fail to prevent a global economic recession.

The Australian currency retreated after yesterday's record gain against the yen as U.S. equities dropped on speculation company earnings will weaken due to slumping demand. The Australian and New Zealand dollars ended two days of gains against the U.S. currency as prices of commodities the two nations export declined.

``Some of the euphoria of the last session has faded,'' said Greg Gibbs, a currency strategist at ABN Amro Australia Ltd. in Sydney. The Australian dollar ``found a near-term top around 72-odd overnight and we've come off in concert with a generally firmer U.S. dollar.''

The Australian dollar slid 2.8 percent to 70.24 U.S. cents as of 5:16 p.m. in Sydney from late in Asian trading yesterday. The currency fell 3.8 percent to 71.34 yen. It surged 9.8 percent against Japan's currency yesterday, the biggest gain since the Australian dollar was allowed to trade freely in December 1983.

New Zealand's dollar weakened 1.9 percent to 62.16 U.S. cents, and slid 2.7 percent to 63.23 yen.

The Australian dollar has dropped 29 percent against the greenback and 31 percent versus the yen in the past three months as commodity prices tumbled and the turmoil in global financial markets prompted investors to sell higher-yielding assets. New Zealand's currency has declined 20 percent versus the dollar and 22 percent against the yen.

Stocks, Commodities

The currencies fell as the Standard & Poor's 500 Index yesterday pared its gain on Oct. 13, which was the biggest one- day advance since 1939.

The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials declined in New York trading, as gold, Australia's third-most valuable raw material export, dropped for a fourth session. Raw materials account for 60 percent of Australia's exports and 70 percent of New Zealand's.

``It's going to be very difficult in this environment for the Aussie dollar to really rally aggressively,'' said Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets in New York. If the euro declines to $1.28, as Citigroup has forecast, then the Australian dollar may weaken to around 65 to 66 U.S. cents, he said.

Australia's Aaa sovereign debt credit rating will not be affected following the government's decision this week to guarantee deposits and banks' term funding, Moody's Investors Service said today in an e-mailed statement.

Economy Is `Strong'

The Australian government will guarantee all deposits with financial institutions for the next three years to bolster confidence in the banking system, Prime Minister Kevin Rudd said Oct. 12. The government will also guarantee all ``term wholesale funding'' by Australian banks operating in international credit markets, he said.

The nation's financial system and economy remain ``strong,'' Rudd said today in an address to the National Press Club in Canberra.

Australian government bonds rose for a second day. The yield on the benchmark 10-year note fell 7 basis points to 5.37 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.551, or A$5.51 per A$1,000 face amount, to 99.020.

New Zealand's 10-year bonds also gained, with the yield on the benchmark note falling 10 basis points to 6.05 percent. A basis point is 0.01 percentage point.

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