By Candice Zachariahs
Jan. 30 (Bloomberg) -- New Zealand’s dollar touched its lowest in six years and the Australian currency also fell as U.S. equities slid and yesterday’s interest-rate cut in New Zealand reduced the appeal of the two South Pacific nations’ assets.
New Zealand’s dollar declined as home-building approvals fell to a record low in December and Finance Minister Bill English said the nation faces a “tough” year ahead. The currencies were lower as U.S. equities ended a four-day rally after a report showed a record 4.776 million Americans collected unemployment benefits in the week ended Jan. 17.
“The New Zealand dollar has a long way to fall,” said Cameron Bagrie, chief economist at ANZ National Bank Ltd. in Wellington. “The Reserve Bank of New Zealand has more work ahead of it.”
New Zealand’s dollar dropped to 50.90 U.S. cents, the lowest since December 2002, as of 12:17 p.m. in Sydney and has fallen 11 percent this month. It slid for a third day to 46.17 yen and has fallen 12 percent in January. It traded at NZ$1.2662 per Australian dollar after touching NZ$ 1.2804, the lowest since August 2008 yesterday.
The currency may trade as low as 40 cents against the greenback and NZ$1.35 versus the Australian dollar, Bagrie said.
Australia’s currency declined 0.9 percent to 64.99 U.S. cents from 65.57 cents late in Asia yesterday and has fallen 6 percent this month. The currency slipped 6.4 percent against the yen in January to 58.46 yen.
Home-building approvals fell 6 percent from November when they gained 4 percent, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. There were 1,113 approvals, the lowest since records began in 1982, it said.
Lower Rates
New Zealand’s dollar was at its lowest in a week versus the yen as central bank Governor Alan Bollard yesterday signaled further reductions after cutting the cash rate to a record 3.5 percent.
“Given the economic outlook the official cash rate is going to 2.5 percent,” ANZ’s Bagrie said.
Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attract investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Commodities
The South Pacific currencies are likely to remain under pressure in February and March as Japanese investors repatriate funds ahead of their fiscal year-end on March 31, wrote Sydney- based John Horner and New York-based Adam Boyton, currency strategists at Deutsche Bank AG, in a note dated yesterday. “We remain bearish” on the Australian and New Zealand dollars, particularly against the yen, they wrote.
Traders are betting the Reserve Bank of Australia will lower its benchmark 1 percentage point to 3.25 percent when it meets Feb. 3, according to a Credit Suisse index based on overnight swaps trading. The RBA has cut its cash target 3 percentage points since September to boost domestic demand as a global slowdown weighs on equity and commodity prices.
Rio Tinto Group, the world’s third-largest mining company, yesterday agreed to cut coking coal prices for India’s JSW Steel Ltd. by 43 percent for the last three months of an annual contract after global demand slumped.
Australia, the world’s biggest coal exporter, relies on raw materials for 60 percent of export revenue.
Coking coal producers from Australia, Canada and Russia start talks with steelmakers this month in Japan to settle annual prices for the year starting April 1, the Tex Report said Jan. 16. JPMorgan Chase & Co. on Jan. 15 predicted a 55 percent decline to $135 a ton for 2009 contracts.
Australian government bonds declined for a second day with the yield on the 10-year note rising eight basis points, or 0.08 percentage point, to 4.16 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.726, or A$7.26 per A$1,000 face amount, to 118.916.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped to 3.25 percent from 3.33 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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