Australian, New Zealand Dollars Slide as Central Bank Cuts Loom

By Candice Zachariahs

Dec. 1 (Bloomberg) -- The Australian and New Zealand dollars declined before meetings by the two nations’ central banks this week where economists expect they will slash borrowing costs to boost domestic growth and combat a global recession.

The Reserve Bank of Australia will make a fourth consecutive reduction to its key rate tomorrow, cutting by 75 basis points to 4.5 percent, according to the median estimate of 20 economists surveyed by Bloomberg. 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 focus is going to be on these central bank decisions,” said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. The currencies are likely to move in ranges, he said, with the Australian dollar trading between 66.20 and 64.50 U.S. cents, and New Zealand’s currency between 54 and 55.5 U.S. cents.

Australia’s currency fell 0.4 percent to 65.31 U.S. cents as of 7:59 a.m. in Sydney from 65.54 cents late in New York on Nov. 28. The currency declined 0.3 percent to 62.37 yen.

New Zealand’s dollar slid 0.4 percent to 54.68 U.S. cents from 54.89 cents in New York late last week. It bought 52.21 yen from 52.37.

Australia’s dollar will “outperform” its neighbor said Morriss, as the Reserve Bank of New Zealand will cut rates by more than the RBA. Traders are betting on a 92 percent chance of a 1.25 percentage point cut to the RBNZ’s 6.5 percent benchmark rate, according to a Credit Suisse index based on overnight swaps trading.

The Reserve Bank of Australia will lower its 5.25 percent benchmark rate 100 basis points, with a 36 percent chance of a 125-point cut, according to a separate Credit Suisse index.

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.

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