By Candice Zachariahs
Nov. 21 (Bloomberg) -- The Australian and New Zealand dollars headed for a second weekly decline after U.S. stocks slumped to an 11-year low, prompting investors to sell higher- yielding assets.
The two currencies pared their losses as regional stocks rallied and the Reserve Bank of Australia purchased the Australian dollar as it approached a five-year low against the greenback. The New Zealand dollar touched the lowest level since 2001 against the yen and traded near a six-year low against the U.S. currency.
``The global economy looks like a bit of a train wreck at the moment,'' said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. ``Currencies like Aussie and kiwi are very linked with the fortunes of the global economy,'' he said referring to the currencies by their nicknames.
Australia's currency fell to 60.76 U.S. cents, close to the five-year low of 60.10 cents touched Oct. 28, before trading at 62.09 cents at 5:05 p.m. in Sydney from 62.72 cents yesterday in Asia and 64.81 late last week in New York. The currency declined 6.5 percent this week to 58.87 yen. The Australian dollar has a ``date with sub-60 cents'' in the next few weeks, Cavenagh said.
New Zealand's dollar fell 1.1 percent today to 53.18 U.S. cents, down 3.8 percent from a week ago in New York. It slumped 6.1 percent this week against Japan's currency to 50.43 yen.
`Providing Liquidity'
The RBA bought its own currency this morning, ``providing liquidity as on previous occasions,'' said a spokesman for the Sydney-based central bank who declined to be identified.
The central bank bought A$3.15 billion ($1.96 billion) of its own currency in October, the biggest net purchase on record, as the Australian dollar posted a record monthly drop.
The Australian and New Zealand currencies have dropped against the yen on four of the past five days as investors dumped higher-yielding assets on increased concern over a global recession and expectations of additional interest-rate cuts from the two nations' central banks.
Australian government bonds advanced, sending yields down on speculation the RBA will keep cutting interest rates. The yield on the benchmark one-year bill dropped 16 basis points to 2.78 percent, according to data compiled by Bloomberg. The yield on the benchmark 10-year note declined 13 basis points to 4.63 percent. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 5.18 percent from 5.35 yesterday.
Rate Odds
Traders are betting the Reserve Bank of New Zealand will reduce rates by 100 basis points next month, with an 88 percent chance of a 125-basis-point cut, according to a Credit Suisse index based on overnight swaps trading.
A separate Credit Suisse index shows traders are betting on at least a 100-basis-point cut from the RBA on Dec. 2, with a 36 percent possibility of a 125-point reduction.
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.
The currencies also fell as prices declined of the commodities the two nations' export. The Australian dollar has slumped 36 percent from a 25-year high in July as the Reuters/Jefferies CRB Index of 19 raw materials plunged more than 50 percent from a record in July.
Lower Forecast
Australia & New Zealand Banking Group downgraded its forecast for Australia's currency to 54 U.S. cents by the end of 2009. The bank said it may lower that estimate if commodity prices fall further than currently forecast. ANZ along with BNP Paribas SA have the most bearish end-2009 forecast for the Aussie among 28 institutions surveyed by Bloomberg News.
New Zealand's currency fell as Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, said it may pay its New Zealand milk suppliers 24 percent less this year as demand slows. That would remove NZ$2.3 billion, or the equivalent of 1.3 percent of gross domestic product, from the nation's economy, Sue Trinh, a Sydney-based senior currency strategist with RBC Capital Markets, wrote in a research note.
RBC forecasts the RBNZ will make a ``bold'' 150-basis-point cut in its benchmark rate on Dec. 4. ``Risks are skewed towards a bigger, rather than a smaller cut,'' Trinh said.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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