By Candice Zachariahs
Nov. 13 (Bloomberg) -- The Australian and New Zealand dollars slid to two-week lows as equities and commodities prices slumped, prompting investors to dump high-yielding assets.
The currencies dropped as a gauge of risk aversion surged to the highest in two weeks and a measure of raw materials prices fell to its lowest since March 2006. Commodities account for more than half of the nations' exports. The Australian dollar pared its loss after the Reserve Bank of Australia bought its own currency.
``We've seen equity markets, commodities and emerging- market currencies selling off and a major unwinding in carry trades,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto. ``Aussie and kiwi have been particularly hard hit because the unwinding of carry trades plus the commodity link is weighing on them,'' he said, referring to the currencies by their nicknames.
Australia's currency slid 2.6 percent to 63.93 U.S. cents as of 4:19 p.m. in Sydney from 65.66 cents late in Asia yesterday. It dropped as low as 63.51, the weakest since Oct. 29. The currency fell 4.4 percent to 61.04 yen.
New Zealand's dollar weakened 2.7 percent to 55.83 U.S. cents. It touched 55.49 cents, also the lowest since Oct. 29. It bought 53.33 yen from 55.83.
The South Pacific nations' currencies plunged as Australian and Japanese stocks followed U.S. equities lower for a third day on concern the economic slump is deepening after Best Buy Co., the largest U.S. electronics retailer, warned of a ``seismic'' slowdown in spending.
Risk Aversion Mounts
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes and a measure of risk aversion, closed at a two-week high of 66.46.
The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials has dropped in six of the past eight sessions on concern a slowing global economy will cut demand for raw materials, which account for about 60 percent of Australia's exports and 70 percent of New Zealand's.
Australia's central bank intervened in the market ``for liquidity purposes,'' a spokesman said. The RBA last bought its own currency for three days from Oct. 24 as it traded near a five-year low against the dollar.
``With the de-leveraging that has occurred, there's no one around to say this has overshot'' and take a position to buy the currency, Assistant Governor Guy Debelle said in Melbourne Oct. 31, referring to that month's interventions.
Spending, Manufacturing Slump
New Zealand's budget deficits will be wider than forecast less than six weeks ago as a slump in the global economy curbs consumer spending and government revenue, according to a report from the Treasury department. Retail sales fell for a third straight quarter, while the nation's manufacturing industry contracted for a sixth month in October, according to separate reports published today.
The Reserve Bank of New Zealand will cut its benchmark rate 100 basis points when it meets Dec. 4, wrote Joshua Williamson, senior strategist at TD Securities in Sydney. ``Only a move to accommodative monetary policy is likely to rescue the consumption data from further declines,'' he said.
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.
Australian government bonds advanced. The yield on the 10- year note fell 18 basis points, or 0.18 percentage point, to 4.903 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 1.467, or A$14.67 per A$1,000 face amount, at 102.778.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 5.57 percent from 5.73 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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