By Candice Zachariahs
Dec. 1 (Bloomberg) -- The Australian and New Zealand dollars dropped the most in a week as regional stocks fell and economists forecast that the two nations’ central banks will slash borrowing costs this week to boost domestic growth.
Australia’s currency extended declines after an index by TD Securities Ltd. showed inflation cooled to the lowest level in a year, adding to speculation the Reserve Bank of Australia will make a fourth consecutive reduction to its key rate tomorrow. Australian and Japanese equities declined after U.S. stock futures fell on concern a global recession will hurt earnings.
“Foreign-exchange markets are moving lockstep with equities again,” said Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney. “That’s sending risk proxies lower and the U.S. dollar higher. The RBA tomorrow is the major focus domestically.”
Australia’s currency fell 1.2 percent, the most since Nov. 20, to 64.76 U.S. cents as of 4:38 p.m. in Sydney from 65.54 cents late in New York on Nov. 28. The currency declined 1.4 percent to 61.67 against the Japanese yen.
New Zealand’s dollar slid 1.3 percent, also the most since Nov. 20, to 54.18 U.S. cents from 54.89 cents in New York late last week. It bought 51.60 yen from 52.37.
The RBA will cut by 75 basis points to 4.5 percent, according to the median estimate of 21 economists surveyed by Bloomberg.
Inflation Gauge
The Australian and New Zealand dollars are likely to move within ranges over the next few days, said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. The Australian dollar will trade between 64.50 and 66.20 U.S. cents, and New Zealand’s currency between 54 and 55.5 cents, he said.
Demand for Australia’s dollar weakened after a monthly gauge released by TD Securities and the Melbourne Institute in Sydney showed consumer prices rose 3 percent last month from a year earlier, after climbing an annual 3.9 percent in October. Prices fell 0.6 percent from October, when they dropped 0.2 percent.
“The prospect of slowing inflation is supportive of further RBA rate cuts,” Trinh said. “Right now the question is how much.”
Australia’s corporate profit growth slowed in the third quarter as earnings at retailers, transport businesses and manufacturers fell, the Bureau of Statistics said in Sydney today.
Rate Outlook
Australia’s dollar will “outperform” its neighbor and may trade as high as NZ$1.24 over the next week because interest rates will drop more in New Zealand than in Australia, ANZ’s Morriss said.
New Zealand’s central bank will slash its cash rate 150 basis points to 5 percent on Dec. 4, based on a survey of 17 economists. A basis point is 0.01 percentage point.
The Aussie, as Australia’s currency is called, bought NZ$1.1973 from NZ$1.1926 late last week in New York.
Benchmark interest rates are 0.3 percent in Japan and 1 percent in the U.S., attracting investors to the South Pacific nations’ assets through so-called carry trades. The risk in such trades is that currency market moves will erase profits.
Australian government bonds advanced. The yield on the 10- year note fell 7 basis points, or 0.07 percentage point, to 4.53 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.584, or A$5.84 per A$1,000 face amount, at 105.875.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.97 percent from 5.08 percent on Nov. 28.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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