Australian, New Zealand Dollars Slide on Global Growth Concerns

By Candice Zachariahs

Nov. 7 (Bloomberg) -- The Australian and New Zealand dollars fell the most in a week as investors dumped higher- yielding assets after the International Monetary Fund slashed global growth forecasts and equities slid worldwide.

The currencies also slumped against the yen as a gauge reflecting expectations for stock movements and risk aversion rose by the most in two weeks. Global growth will be 2.2 percent next year, the IMF said yesterday, slashing a 3 percent projection announced a month ago.

``From here you have to think that the Aussie is going to be under pressure throughout the morning with equities lower,'' said Glenn Wittingslow, head of foreign-exchange options at St. George Bank Ltd. in Sydney. ``If we get down around the 66- figure level that should represent some buying.''

Australia's currency declined 2.3 percent to 66.34 U.S. cents as of 10:21 a.m. in Sydney from 67.86 cents late in Asia yesterday. The currency fell 2.6 percent to 64.60 yen.

New Zealand's dollar slipped 2.4 percent to 58.42 U.S. cents from 59.85 cents in Asia yesterday. It bought 56.89 yen from 58.53.

The currencies dropped as the Dow Jones Industrial Average posted its worst two-day loss since 1987 after jobless claims jumped and the shrinking economy reduced earnings at companies from Blackstone Group Inc. to News Corp. Australia's benchmark stock index, the S&P/ASX 200 Index, was 3.3 percent lower.

Risk Aversion

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.

``The return of risk aversion dominated the foreign- exchange markets and will likely continue to overshadow today's trading,'' wrote Toronto-based Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc.

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

Australian government bonds edged higher. The yield on the benchmark 10-year note was little changed at 5.143 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.011, or A$0.11 per A$1,000 face amount, to 100.843. 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 5.993 percent today from 6.07 yesterday.

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