Australian, New Zealand Dollars Head for Second Weekly Advance

By Candice Zachariahs

Nov. 7 (Bloomberg) -- The Australian and New Zealand dollars headed for a second weekly gain against the greenback on speculation the Federal Reserve will lower interest rates as the U.S. economy probably lost the most jobs since 2003.

Australia's dollar ended the week lower against the yen after a gauge reflecting risk aversion rose by the most in two weeks, reducing investor appetite for the nation's higher- yielding assets. The International Monetary Fund said yesterday that Australia's economy will grow 1.8 percent in fiscal 2009, even as the U.S., Japan and Europe enter their first simultaneous recession in the post-World War II era.

``The Aussie has probably held up okay allowing for what we've seen in the equity market the past few days,'' said Glenn Wittingslow, head of foreign-exchange options at St. George Bank Ltd. in Sydney. ``Part of it is the fact that we're in better shape than the rest of the world.''

Australia's currency gained 0.4 percent to 67.07 U.S. cents as of 5 p.m. in Sydney from 66.79 cents in New York on Oct. 31. The currency fell 0.6 percent to 65.36 yen from 65.74 last week.

New Zealand's dollar was 1.2 percent higher at 58.95 U.S. cents from 58.27 cents in New York Oct. 31. It has risen 0.1 percent this week to 57.45 yen.

The currencies rose versus the dollar before a U.S. government report that may show the jobless rate in the world's largest economy climbed to a five-year high in October. Payrolls shrank by 200,000 workers, the biggest decline since 2003, according to economists surveyed by Bloomberg News.

Global Slowdown

The IMF yesterday slashed global economic growth forecasts to 2.2 percent next year, from a 3 percent projection announced a month ago and called for more interest-rate cuts and fiscal stimulus. The Bank of England yesterday joined the Reserve Bank of Australia in announcing larger-than-forecast interest rate cuts this week. The BOE slashed rates by 1.5 percentage point in its biggest cut since 1992, while the RBA reduced rates by 0.75 percentage point Nov. 4.

``The global economy is slowing sharply,'' said Callum Henderson, head of foreign-exchange strategy at Standard Chartered Plc in Singapore. ``To think that the worst is over in terms of the economy is delusional.''

Australia's dollar was lower against Japan's yen after the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a measure of investor sentiment, closed at 63.68, the highest since Oct. 29.

Bonds, Swaps

The benchmark rate is 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. The South Pacific nations' assets have been popular with investors seeking higher returns on low-cost funds. The risk in such trades is that currency market moves erase profits.

Australian government bonds fell. The yield on the benchmark 10-year note rose 4 basis points to 5.186 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 0.330, or A$3.30 per A$1,000 face amount, to 100.502. A basis point equals 0.01 percentage point.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 5.93 percent today from 6.07 yesterday.

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