Australian, N.Z. Dollars Decline as Japan Enters a Recession

By Candice Zachariahs

Nov. 17 (Bloomberg) -- The Australian and New Zealand dollars fell, extending last week's decline, as a Japanese report showing the world's second-biggest economy entered a recession prompted investors to sell higher-yielding assets.

The currencies also weakened after leaders of the Group of 20 nations called for a ``broader policy response,'' including additional interest-rate cuts and fiscal stimulus to boost the global economy, at the end of a two-day meeting on Nov. 15. The Group promised to gather again before May.

The G-20 talks are ``a positive step, but it's going to be some time before we see the impact of the weekend's meeting in Washington flow through to some tangible actions,'' said Mike Symonds, head of currency trading at Bank of New Zealand Ltd. in Wellington. The Australian and New Zealand dollars ``will trade lower overall in the next 24 to 48 hours.''

Australia's dollar fell 0.4 percent to 64.58 U.S. cents as of 5:12 p.m. in Sydney, from 64.81 cents late in New York on Nov. 14. The currency slid 0.5 percent against the yen to 62.65 yen. New Zealand's dollar dropped 0.1 percent to 55.25 U.S. cents, and 0.2 percent to 53.60 yen.

The G-20 meeting set a March deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies. Japan's economy shrank an annualized 0.4 percent in the three months ended Sept. 30, after contracting a revised 3.7 percent in the previous period, the Cabinet Office said today in Tokyo.

`Lackluster' Sales

Retail sales in Australia, adjusted to remove the effect of inflation, rose 0.1 percent in the three months ended Sept. 30 from the previous quarter when they fell 0.2 percent, the Bureau of Statistics said today in Sydney. The median forecast of economists surveyed by Bloomberg was for a 0.4 percent gain.

``Today's lackluster retail sales data reinforces the case for further aggressive interest-rate cuts from the Reserve Bank of Australia,'' Sydney-based Jo Heffernan, a Sydney-based senior economist at St George Bank Ltd., wrote in a research note.

There's an 86 percent chance the RBA will cut its benchmark rate by 1 percentage point on Dec. 4 to 4.25 percent, according to a Credit Suisse Group index based on overnight swaps trading.

The Australian and New Zealand dollars pared losses as the MSCI Asia Pacific Index of the region's shares reversed some of its earlier declines, prompting speculation some investors may return to higher-yielding assets.

The ``Aussie is coupling its move to the move up in the stock markets,'' said Euan McCreadie, senior corporate dealer at online foreign-exchange firm OzForex Ltd. in Sydney. The currency is well supported at the 64.30 to 64 U.S. cent level as traders await the release of minutes from the central bank's November meeting tomorrow, he said.

Net Shorts

Futures traders increased bets the Australian dollar will decline against the U.S. currency, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar compared with those on a gain -- so-called net shorts -- was 8,604 on Nov. 11, compared with net shorts of 5,513 a week earlier.

The Australian and New Zealand currencies dropped in the past three months as their central banks cut interest rates to boost domestic demand, reducing the appeal of the nation's assets for international investors.

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.

Australian government bonds advanced. The yield on the 10- year note fell 7 basis points, or 0.07 percentage point, to 4.97 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.525, or A$5.25 per A$1,000 face amount, at 102.269.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, declined to 5.48 percent from 5.62 on Nov. 14.

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