Australian, N.Z. Dollars Decline on Stocks, Confidence Report

By Candice Zachariahs

Nov. 11 (Bloomberg) -- The Australian and New Zealand dollars fell the most in two weeks as stocks slumped on the worsening outlook for company earnings, prompting investors to sell higher-yielding assets.

The currencies also declined for the third day in four after an industry report showed Australian business confidence plunged to a record low last month. Both currencies erased their gains from yesterday, which came after China pledged to spend $586 billion dollars to prop up its economy, Australia's biggest trading partner.

``Currency markets continue to look at stocks to gauge the health of the banking sector, corporate sector and the economy generally,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``That's driving risk aversion through the market, which weighs on the Aussie,'' he said, referring to the currency by its nickname.

Australia's currency fell as much as 4.2 percent before trading 3.2 percent down at 67.19 U.S. cents at 5:16 p.m. in Sydney, from late in Asia yesterday. The local dollar dropped 4.6 percent to 65.78 yen.

New Zealand's dollar slumped as much as 4 percent before buying 58.62 U.S. cents, from 60.21 in Asia yesterday. It weakened 4 percent against Japan's currency to 57.42 yen.

The currencies slipped as Australian and New Zealand equities followed U.S. stocks lower. The S&P/ASX 200 Index fell 3.7 percent, extending this year's decline to 38 percent, and New Zealand's NZX 50 Index dropped 1.4 percent.

Optimism Drops

The Australian dollar weakened after National Australia Bank Ltd. said its sentiment index slumped to the lowest level in October since the series began in 1989, according to a survey of more than 400 companies.

``Fear reigns supreme,'' said Alan Oster, chief economist at National Australia Bank in Melbourne. ``Continuing volatility in global equity markets, emergency financial packages, falling commodity prices and continuing talk of a global recession have finally broken business optimism.''

Australian government bonds advanced. The yield on the 10- year note fell 15 basis points, or 0.15 percentage point, to 5.04 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 1.167, or A$11.67 per A$1,000 face amount, to 101.646.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 5.79 percent from 5.92 yesterday.

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