Australia, N.Z. Dollars Give Up Gains as Regional Stocks Slide

By Candice Zachariahs

Nov. 19 (Bloomberg) -- The Australian and New Zealand dollars erased earlier gains against the greenback as slides in regional equities damped risk appetite, countering a late rally in U.S. stocks.

The Australian dollar was higher versus the yen before speeches today from policy makers at the Reserve Bank of Australia, which is expected to lower interest rates next month. Traders pared bets on a 100 basis point cut after the central bank yesterday released minutes of its Nov. 4 meeting saying this month's 75 basis point reduction was intended to enable monetary policy to move ``quickly to a neutral position.''

Currency markets are ``still following the gyrations intra- day in equities but we're seeing a little less of that strength in the U.S. dollar and the yen,'' said Greg Gibbs, a currency strategist at ABN Amro Australia Ltd. in Sydney. ``It's an indication that some of the very rapid deleveraging that was driving up the U.S. dollar has slowed.'' The Australian dollar, he said, was benefiting from that.

Australia's currency was 0.1 percent higher at 64.71 U.S. cents as of 2 p.m. in Sydney, from 64.61 cents late in Asia yesterday. It advanced 0.4 percent to 62.48 yen. The Aussie, as the currency is called, will trade between 63.5 cents and 67 cents today, Gibbs said.

New Zealand's dollar fell 0.1 percent to 55.04 U.S. cents from 54.98. It bought 53.15 yen from 52.94.

The Australian dollar plunged 26 percent versus the greenback over the past three months and 35 percent against the yen after the Sept. 15 collapse of Lehman Brothers Holdings Inc. caused money markets to seize up and equities to tumble. The New Zealand dollar dropped 23 percent and 32 percent against the dollar and yen, respectively, in the same period.

Stocks Slide

Most Asian stocks declined, led by commodity producers and financial companies, on concern the global economy is entering a recession. Australia's S&P/ASX 200 Index slid 1.6 percent, while Japan's Nikkei 225 Stock Average fell 1.8 percent. The Standard & Poor's 500 Index of U.S. shares climbed 1 percent yesterday, after falling below its lowest close since 2003.

Benchmark 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., encouraging investors to borrow in Japan and the U.S. to buy the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.

Traders are betting the RBA will lower rates by at least 0.75 percentage point at its next meeting on Dec. 2, according to a Credit Suisse index based on overnight swaps trading yesterday. There was a 71 percent chance of a one percentage point reduction, down from 80 percent on Nov. 17.

Australian government bonds advanced. The yield on the 10- year note fell 8 basis points, or 0.08 percentage point, to 4.88 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 was higher by 0.685, or A$6.85 per A$1,000 face amount, at 102.962.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 5.423 percent from 5.475 yesterday.

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