By Candice Zachariahs
Nov. 24 (Bloomberg) -- The Australian and New Zealand dollars slid as investors dumped higher-yielding currencies on concern over a U.S. government rescue of Citigroup Inc.
The currencies fell as Australian financial stocks led declines in the country’s shares amid reports indicating U.S. regulators held talks with Citigroup to limit its potential losses after the bank’s shares plunged 60 percent last week.
“People are unwilling to take large positions just on the uncertainty of whether or not the U.S. Fed and Treasury will broker a deal on Citigroup,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. based in Wellington. “The key driver for the Aussie and kiwi this week will again be global sentiment,” she said, calling the currencies by their nicknames.
Australia’s currency dropped 1.2 percent to 62.50 U.S. cents as of 12:26 p.m. in Sydney from 63.25 cents late in New York trading on Nov. 21. The currency slumped 1.9 percent to 59.53 yen.
New Zealand’s dollar fell 1.3 percent to 53.01 U.S. cents from 53.71 in New York last week. It bought 50.40 yen from 51.43.
The currencies fell as Australian and South Korean stocks dropped amid speculation by investors and analysts that the U.S. government will have to help Citigroup. The bank’s $2 trillion of assets dwarfs companies such as American International Group Inc. that received government support this year.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid a repeat of the chaotic aftermath of Lehman Brothers Holdings Inc.’s Sept. 15 bankruptcy.
“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”
Trading may be thin in the Asian session today as Japanese markets are closed because of a holiday, Hampton said.
Shorts Fall
Futures traders decreased their bets that the Australian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar compared with those on a gain -- so-called net shorts -- was 5,790 on Nov. 18, compared with net shorts of 8,604 a week earlier.
Australian government bonds were little changed with the yield on the 10-year note falling 1 basis points, or 0.01 percentage point, to 4.62 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.109, or A$1.09 per A$1,000 face amount, to 105.151.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 5.15 percent from 5.18 on Nov. 21.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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