Australian, New Zealand Dollars Decline as Risk Appetite Wanes

By Candice Zachariahs

Nov. 20 (Bloomberg) -- The Australian and New Zealand dollars fell the most in a week on speculation a slump in regional stocks and the prospect of more interest-rate cuts prompted investors to pare holdings of the two nations' assets.

The currencies extended the week's losses against the greenback as Australia's benchmark share index fell to a four- year low after prices declined for commodities the nation exports. Traders are betting the Reserve Bank of Australia will add to its steepest rate-cutting cycle since 1991 when it meets next month, reducing the yield offered by local assets.

``Stock markets are the leader as a reflection of risk appetite and while they remain under pressure it's hard to sense a turn in the outlook for global growth,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. ``The pressure will remain on the downside for the Aussie,'' he said.

Australia's currency dropped 2 percent to 63.43 U.S. cents as of 4:51 p.m. in Sydney from late in Asia yesterday, the biggest decline since Nov. 13. The local dollar fell 3.9 percent versus Japan's currency to 60.29 yen.

New Zealand's dollar weakened 1.8 percent to 53.89 U.S. cents and slipped 3.6 percent to 51.25 yen.

The RBA said in a monthly bulletin today that it bought A$3.15 billion ($2 billion) of its own currency last month, the biggest net purchase on record, as the local dollar posted a record monthly decline.

Rate Outlook

Traders are betting Australian policy makers will lower borrowing costs by at least 75 basis points at their next meeting on Dec. 2, according to a Credit Suisse index based on overnight swaps. The chance of a 100-basis-point cut is 95 percent, the index shows.

Benchmark interest rates are 5.25 percent in Australia and 6.5 percent in New Zealand, compared with 1 percent in the U.S. and 0.3 percent in Japan.

``The question will be whether we need to be on the expansionary side of neutral'' with monetary policy, RBA Governor Glenn Stevens said yesterday in Melbourne. ``That is what we'll be asking ourselves each month.'' The current rate could be considered neutral, he said.

Australian government bonds rose for a fourth day. The yield on the benchmark 10-year note fell 8 basis points, or 0.08 percentage point, to 4.76 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.649, or A$6.49 per A$1,000 face amount, to 103.932.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, declined for a fourth day, reaching 5.35 percent from 5.425 yesterday.

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