By Ron Harui and Tracy Withers
Jan. 13 (Bloomberg) -- The Australian and New Zealand dollars fell for a second day against the U.S. currency as a deepening global slowdown and a decline in commodity prices tempered demand for higher-yielding assets.
New Zealand’s dollar dropped to the lowest level in almost four weeks after Standard & Poor’s revised the nation’s foreign currency credit rating outlook to negative from stable. Australia’s dollar touched the lowest in more than three weeks versus Japan’s currency as gold, the country’s third-most valuable export, fell the most in 1 1/2 months.
“Renewed concern about the global outlook has seen investors sell growth-sensitive currencies in favor of the relative safety of the U.S. dollar,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “The New Year’s optimism has well and truly worn off.”
Australia’s dollar declined to 67.48 U.S. cents as of 12:06 p.m. in Sydney from 68.65 cents late in Asia yesterday. It reached 67.44 cents, the lowest level since Dec. 17. The currency fell to 60.36 yen from 61.80 yen after touching 60.32 yen, the weakest since Dec. 17.
New Zealand’s dollar fell to 56.27 U.S. cents, the lowest since Dec. 17, from 57.93 cents late in Asia yesterday. The currency dropped to 50.42 yen from 52.14 yen. It touched 50.36 yen, the weakest since Dec. 17.
New Zealand’s AA+ foreign currency credit rating may be cut if the nation’s current-account deficit and overseas debt begin to curb growth and investment, Standard & Poor’s said. The rating company affirmed the rating but revised the outlook to negative from stable. The outlook on the AAA local-currency debt remains stable.
New Zealand ‘Bearish’
The currency also fell as the New Zealand Institute of Economic Research said today in Wellington a net 64 percent of companies surveyed last quarter expected the economy would worsen over the next six months.
“There is enough in this survey to encourage a rate cut of at least 100 basis points” this month, Sue Trinh, senior currency strategist in Sydney at RBC Capital Markets, wrote in a research note today. The survey is “bearish the New Zealand dollar,” she said.
The Reserve Bank of New Zealand will lower its benchmark interest rate by at least a half-percentage point to 4.50 percent at its Jan. 29 meeting, according to a Bloomberg News survey of economists. A basis point is 0.01 percentage point.
The Bloomberg UBS Constant Maturity Index of 26 raw materials dropped 4.4 percent yesterday, the most since Dec. 5, while the price of gold fell 3.9 percent, the largest decline since Dec. 1.
Implied Volatility
Commodities including coal, iron ore, gold and oil account for 60 percent of Australia’s export revenue. New Zealand relies on raw materials including milk and timber for 70 percent of its overseas shipments.
Implied volatility on one-month Australian dollar options against the yen rose to 34.37 percent from 33.79 percent late in Asia yesterday, indicating a greater risk of exchange-rate fluctuations that can erode profit on so-called carry trades.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S.
Australian government bonds advanced, pushing the two-year yield down 11 basis points, or 0.11 percentage point, to 2.64 percent, according to data compiled by Bloomberg. The price of the 5.25 percent note due August 2010 rose 0.170, or A$1.70 per A$1,000 face amount, to 104.011.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 4.06 percent from 4.23 percent late in Asia yesterday.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net.
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