Australian, New Zealand Dollars Slide to 2-Week Low on Equities

By Candice Zachariahs

Nov. 12 (Bloomberg) -- The Australian and New Zealand dollars dropped to the lowest in two weeks after equity markets in Europe and the U.S. slumped, prompting investors to dump higher yielding assets.

The currencies also slid as commodities, which make up more than half of the two nations' exports, fell in New York with oil trading below $60 a barrel. U.S. stocks declined as General Motors Corp. tumbled to its lowest price since 1943 on concern the automaker is approaching bankruptcy.

``When you look at equity markets around the world -- it's bleak,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``We may have seen the lows for the day, but the way Asia is placed and U.S. equity markets finished, you can't rule out testing those lows again.''

Australia's currency dropped to as low as 64.76 U.S. cents, the weakest since Oct. 30, before trading at 65.79 cents as of 8:20 a.m. in Sydney. The currency fell 1.8 percent to 64.19 yen from 65.35 yen late in Asia yesterday.

New Zealand's dollar slid 1.6 percent to 57.33 U.S. cents from 58.25 cents in Asia yesterday. It traded as low as 56.89 cents, the weakest since Oct. 29. It bought 56.01 yen.

The currencies declined as the Standard & Poor's 500 Index and the Dow Jones Industrial Average fell for a second day on concern corporate earnings will slump amid a deepening recession.

The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a measure of risk aversion, closed higher for a second day.

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., attracting investors to the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.

Crude Falls

Australia's currency also declined as crude oil, the nation's fourth-most-valuable raw material export, traded below $60 for the first time since March 2007. Crude oil for December delivery declined 4.8 percent, to $59.43 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange.

In New Zealand, Reserve Bank Governor Alan Bollard said the nation's banks have enough capital to withstand a decline in borrowing and rising loan defaults.

``Collectively the banks appear well placed to weather a weaker economy,'' Bollard said in his six-monthly report on the stability of the financial system released in Wellington today.

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