Australian, N.Z. Dollars Fall as Stocks Slide on Growth Concern

By Candice Zachariahs

Oct. 10 (Bloomberg) -- The Australian and New Zealand dollars fell as U.S. stock markets tumbled and investors dumped risky assets on concern the world will slip into recession, curbing demand for commodities the nations export.

The Australian currency slid against the yen, after yesterday gaining by the most since December 1983, as the Dow Jones Industrial Average fell below 9,000 for the first time since 2003. Exxon Mobil Corp., the world's largest oil company, dropped the most in 21 years as oil retreated below $85 a barrel.

``Slowing global growth will continue to put downside pressure on currencies that display a strong link to cyclical forces, such as the Australian dollar,'' wrote Goldman Sachs Group Inc. currency strategists led by London-based Thomas Stolper in a research note dated yesterday.

The Australian dollar fell 2.3 percent to 68.24 U.S. cents as of 7:31 a.m. in Sydney from 69.88 cents in late Asian trading yesterday. The currency dropped 3.3 percent to 67.99 yen after rising 7.3 percent yesterday to 70.32 yen.

New Zealand's dollar weakened 2.3 percent to 60.37 U.S. cents from 61.79 cents late in Asia yesterday. It slid 3.3 percent to 60.14 yen.

The currencies dropped as crude oil, Australia's fourth- most valuable raw material export, fell to an 11-month low on concern fuel demand will drop if a global recession develops. Futures touched $84.63 a barrel, the lowest intraday price since Oct. 15, 2007.

The Australian and New Zealand dollars also fell as the Standard & Poor's 500 Index retreated for a seventh day. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose above 60 to a record.

The currencies are favorites of so-called carry trades, where investors seek higher returns on investments funded in countries with lower borrowing costs. The risk in such trades is that exchange-rate fluctuations erase profits.

Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to the South Pacific nations' assets.

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