By Candice Zachariahs
Nov. 14 (Bloomberg) -- The Australian and New Zealand dollars headed for a weekly decline against the U.S. currency as global stocks were set for a weekly loss, prompting investors to sell the nations' higher-yielding assets.
The two South Pacific currencies were also set for a weekly decline against the yen on concern a Group of 20 nations summit starting today in Washington will fail to reach a consensus on how to kick-start the global economy. The Australian dollar pared losses after the central bank said it bought its own currency for a second straight day to ``add liquidity to the market.''
``The risk aversion scenario is still very much in play,'' said Paul Milton, chief foreign-exchange dealer at Societe Generale SA in Sydney. ``The Aussie is really swinging around on the equity story more than anything else at the moment,'' he said, referring to the currency by its nickname.
Australia's currency declined 2.8 percent to 65.53 U.S. cents as of 4:48 p.m. in Sydney from 67.41 cents late in New York on Nov. 7. The currency dropped 3.9 percent to 63.65 yen from 66.20 yen last week.
New Zealand's dollar dropped 4.8 percent to 56.32 U.S. cents from 59.12 cents in New York a week earlier. It was 5.9 percent lower at 54.68 yen.
The two currencies added to losses this week after the VIX volatility index closed at a two-week high on Nov. 12. The VIX is a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes and a measure of risk aversion.
G-20 Meeting
The G-20 will meet for two days to debate proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit- rating companies to stiffer oversight.
The currencies also fell as China, Australia's largest trading partner, warned that it faced a ``formidable challenge'' in preventing an economic slowdown. A ``severe situation at home and abroad'' has undermined growth, Mu Hong, a top planning official, said at a briefing in Beijing.
Demand for the Australian and New Zealand dollars decreased as interest-rate reductions made the currencies less appealing to investors engaged in so-called carry trades. In such trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. The risk is that swings in currencies may erase profits.
Benchmark interest rates are 5.25 percent in Australia and 6.5 percent in New Zealand, compared with 0.3 percent in Japan and 1 percent in the U.S.
Rate Cuts
The Reserve Bank of Australia has cut its benchmark rate three times since September from a 12-year high of 7.25 percent, while the Reserve Bank of New Zealand has reduced rates three times since July from a record high of 8.25 percent.
The currencies advanced today, snapping a three-day losing streak, as Australian and Japanese stocks rose, following a surge in U.S. equities yesterday as investors bought energy shares trading at their cheapest valuations on record. The Standard & Poor's 500 index added 6.9 percent and Dow Jones Industrial Average advanced 6.7 percent.
``You've got strong closing momentum in the U.S. stock markets,'' said Tony Morriss, a senior currency strategist in Sydney at Australia & New Zealand Banking Group. The rebound in the Aussie ``is being driven by stock markets and perceptions of risk.''
Australian government bonds declined. The yield on the 10- year note climbed 12 basis points, or 0.12 percentage point, to 5.030 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.988, or A$9.88 per A$1,000 face amount, to 101.744.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 5.62 percent from 5.57 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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