By Candice Zachariahs
Dec. 2 (Bloomberg) -- The Australian and New Zealand dollars declined after Asian and U.S. equities tumbled as a panel said the world’s largest economy entered a recession a year ago, reducing demand for higher-yielding assets.
The currencies slid as the two nations’ central banks are forecast to cut borrowing costs this week to boost growth amid a global recession. Lower interest rates reduce the appeal of Australian and New Zealand assets for investors seeking higher returns on funds borrowed in low-cost countries such as the U.S. and Japan. Australia’s central bank announces its rate decision at 2:30 p.m. Sydney time.
“There’s a lot of nervousness out there at the moment ahead of the RBA meeting today and also on the back of the weak performance in equities,” said Jim Vrondas, manager of corporate business at online foreign-exchange dealer OzForex Ltd. “The Aussie is going to come under some pretty intense selling pressure and could see a move back toward 63 cents,” he said, referring to the currency by its nickname.
Australia’s currency declined 0.6 percent to 63.67 U.S. cents as of 11:20 a.m. in Sydney from 64.07 cents late in Asia yesterday. The currency fell 1 percent to 59.51 yen.
New Zealand’s dollar slid 1 percent to 52.99 U.S. cents from 53.54 cents in Asia yesterday. It bought 49.53 yen from 50.22.
The currencies slipped as Australian and Japanese equities followed U.S. stocks lower after declines in American and European manufacturing pointed to a deepening global recession. The National Bureau of Economic Research, the panel that dates U.S. business cycles, said the U.S. is in its longest recession since 1982.
Australian Rates
The Reserve Bank of Australia is forecast by economists to lower its benchmark rate to a six-year low today. Governor Glenn Stevens will cut interest rates 75 basis points according to 15 of 21 economists surveyed by Bloomberg News. A basis point is 0.01 percentage point.
“If the RBA goes less than 100, we’ll see the Aussie dollar rally a little and we should see the rally across the bond curve, particularly at the short end, unwind,” said Joshua Williamson, senior strategist at TD Securities in Sydney.
TD Securities is among four institutions forecasting a 100 basis point cut.
Current Account
Australia’s current-account deficit narrowed for a second quarter in the three months through September as exports of coal and iron ore rose. The shortfall on goods, services and investment shrank to A$9.74 billion ($6.2 billion) from a revised A$14 billion in the second quarter, the Bureau of Statistics said in Sydney today.
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.
Australian government bonds advanced. The yield on the 10- year note fell 16 basis points, or 0.16 percentage point, to 4.368 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 1.35, or A$13.5 per A$1,000 face amount, to 107.233.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.89 percent from 4.97 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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