Australian Dollar Falls as U.S. Senate Rejects Carmaker Bailout

By Candice Zachariahs

Dec. 12 (Bloomberg) -- The Australian dollar dropped from a one-month high against the U.S. currency as talks on a $14- billion rescue for the U.S. auto industry failed. New Zealand’s currency touched a seven-year low against the yen.

The U.S. Senate rejected the bailout plan, ending Congressional efforts to aid General Motors Corp. and Chrysler LLC, which may run out of cash early next year. The failure to rescue the automakers trimmed so-called carry trades by which investors buy riskier assets in countries including Australia and New Zealand with loans from Japan, where costs are lower.

“Risk aversion just reared its head again on the back of that proposal to bail out the U.S. auto industry failing,” said Besa Deda, acting chief economist and strategist at St. George Bank Ltd. in Sydney. “The Aussie dollar will remain under pressure. We’re looking for it to trade at 61 U.S. cents by the end of the year,” she said, referring to the currency by its nickname.

Australia’s currency weakened to 65.74 cents as of 4:49 p.m. in Sydney, from 66.38 cents late in Asia yesterday. It earlier touched 68.01 U.S. cents, the highest level since Nov. 11. It has risen 1.6 percent since closing at 64.67 cents in New York last week. The currency dropped 1.6 percent this week to 59.03 yen.

New Zealand’s dollar touched 48.26 yen, the lowest since October 2001, and fell 0.9 percent this week to 49.07 yen. It rose 2.6 percent to 54.74 U.S. cents from last week in New York.

The Australian dollar has dropped 25 percent against the dollar and 40 percent versus the yen this year as the slump in commodities and a global recession prompted investors to dump the nation’s assets. New Zealand’s currency has fallen 28 percent and 43 percent against the dollar and yen, respectively.

Tax Breaks

Australia’s currency held on to a weekly gain against the greenback as Prime Minister Kevin Rudd said the government will add A$4.7 billion ($3.2 billion) in infrastructure spending to an already proposed A$26 billion in stimulus plans. The local currency advanced this week as reports showed consumer confidence climbed for a second month and home-loan approvals rose for the first time in nine months.

Rudd today announced a A$440 million ($295 million) tax break for small businesses, which employ 1.7 million people. He also said the government would spend an extra A$4.74 billion on projects such as railway lines to boost the economy. That would add to A$26 billion in stimulus plans announced to ease concerns the economy will slip into a recession.

The Reserve Bank of Australia cut its benchmark rate by 3 percentage points since September to 4.25 percent. Economic growth has slowed “more quickly than anyone had forecast” in China, the nation’s biggest trading partner, Governor Glenn Stevens said this week.

‘Weak Report’

New Zealand’s dollar weakened against the yen today after a government report showed retail sales fell the most in more than four years in October as spending on cars declined. Sales dropped 1.3 percent from September when they rose 0.3 percent, seasonally adjusted, Statistics New Zealand said in Wellington.

“Overall it is a weak report that supports the case for further monetary-policy easing,” Sydney-based Joshua Williamson, a senior strategist at TD Securities Ltd., wrote in a research note.

The Reserve Bank of New Zealand lowered interest rates by a record 1.5 percentage points to 5 percent this month. Traders are betting Governor Alan Bollard will cut them by another 1 percentage point in the next 12 months to lift the domestic economy out of recession.

Australian government bonds fell, pushing the yield on the 10-year note up three basis points to 4.3 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 dropped 0.221, or A$2.21 per A$1,000 face amount, to 107.797.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.7 percent from 4.79 yesterday.

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