Australian, N.Z. Dollars Slide to Two-Week Low as Stocks Fall

By Candice Zachariahs

Nov. 12 (Bloomberg) -- The Australian and New Zealand dollars fell to the lowest in two weeks as stock markets slumped, prompting investors to sell higher yielding assets.

The currencies also weakened for a second day as commodities, which make up more than half of the two nations' exports, fell in New York with oil touching the lowest level in 20 months. Australian and New Zealand shares extended two months of declines after U.S. equities slumped yesterday on concern General Motors Corp. 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 as low as 64.76 U.S. cents, the weakest since Oct. 30, before trading 1.2 percent down at 66 cents as of 4:54 p.m. in Sydney from late yesterday in Asia. The currency fell 1.4 percent to 64.45 yen.

New Zealand's dollar slid 1.4 percent to 57.59 U.S. cents after trading as low as 56.89 cents, the weakest level since Oct. 29. It bought 56.24 yen from 56.96.

The currencies declined for the fourth time in five days as the Standard & Poor's 500 Index and the Dow Jones Industrial Average fell for a second day yesterday 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 Rates

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.

Australia's currency also weakened as crude oil, the nation's fourth-most-valuable raw material export, dropped as low as $58.32 a barrel, the lowest since March 2007. The commodity has tumbled 39 percent this year.

Wages growth slowed in the third quarter, adding to signs the Australian economy is weakening. Hourly pay rates excluding bonuses rose 0.9 percent from the previous three months, when they increased a revised 1.1 percent, the statistics bureau said today in Sydney.

Traders are betting the Reserve Bank of Australia will lower its benchmark rate by 75 basis points when it meets Dec. 2, according to a Credit Suisse index based on overnight swaps trading. There is a 64 percent chance of a 100 basis-point cut.

`Big Move'

``The RBA is going to make another big move,'' said Matthew Hassan, an economist at Westpac Banking Corp. in Sydney. ``For the Reserve Bank there's still a sense of urgency at the moment to bring rates down to an expansionary setting.''

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.

Australian government bonds declined with the yield on the 10-year note rising 4 basis points to 5.084 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.335, or A$3.35 per A$1,000 face amount, at 101.311. 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 5.73 percent from 5.79 yesterday.

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