Australia, N.Z. Dollars Set for Biggest Weekly Loss in 3 Months

By Ron Harui and Tracy Withers

Jan. 16 (Bloomberg) -- The Australian and New Zealand dollars headed for the biggest weekly losses in almost three months on increasing concern the global slowdown is worsening, reducing demand for higher-yielding currencies.

Australia’s currency touched a five-week low against the dollar as a government report yesterday showed the nation’s unemployment rate rose to the highest in almost two years. New Zealand’s currency declined to the lowest level in more than six weeks as a government valuation agency said yesterday the country’s house prices dropped the most in December since 2005.

“The Aussie dollar is down quite a bit” for the week, said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world’s largest interbank broker. “What is sparking that is renewed risk aversion and concerns over the global economy. The path of least resistance is down for the Aussie,” he said, referring to the currency by its nickname.

Australia’s dollar bought 66.64 U.S. cents as of 11:40 a.m. in Sydney from 70.34 cents in New York on Jan. 9 and 66.12 cents late in Asia yesterday. The 5.3 percent weekly decline was the biggest since Oct. 24. It reached 65.38 cents, the lowest since Dec. 12. The currency traded at 59.90 yen from 63.59 yen on Jan. 9 and 58.79 yen yesterday, when it touched 58.20 yen, the lowest in almost five weeks.

The Australian currency may decline to 65 cents and possibly as low as 63 cents in the next few weeks, Carr said.

New Zealand’s dollar traded at 54.04 U.S. cents from 59.20 cents on Jan. 9 and 53.48 cents late in Asia yesterday. The 8.7 percent weekly decline was the largest since Oct. 24. It reached 52.80 cents, the weakest since Dec. 4. The currency bought 48.57 yen from 53.49 yen on Jan. 9 and 47.56 yen yesterday. It touched 47.16 yen, the lowest since September 2001.

The two currencies rose today as gains in Asian stocks encouraged investors to buy higher-yielding assets.

Jobless Rate

Australia’s jobless rate climbed in December to 4.5 percent, from 4.4 percent, as full-time employment plunged by 43,900, the statistics bureau said in Sydney. The total number of people employed dropped 1,200.

New Zealand house prices fell 7.4 percent last month from a year earlier, the biggest decline since the series began in 2005, Quotable Value New Zealand Ltd. said in an e-mailed report. A second report showed house sales dropped 23 percent in December from a year earlier and it took longer to sell property.

“It has been a week of carnage for the New Zealand dollar,” said Danica Hampton, a strategist at Bank of New Zealand Ltd. in Wellington. “The U.S. dollar strengthened as investors digested continued weakness in global equities and the European Central Bank’s rate cut” to 2 percent from 2.50 percent yesterday.

Risk Appetite

Both currencies have paced declines in U.S. stocks, which are a bellwether for investors’ risk appetite. As concerns over the global economy deteriorate, investors typically sell stocks and reduce their holdings of higher-yield currencies.

The Standard & Poor’s 500 Index of U.S. equities has fallen 5.2 percent this week on concern banks will need more government aid. The index rose 0.1 percent yesterday on reports that Bank of America Corp. doesn’t need as much funding from the U.S. Treasury’s Troubled Asset Relief Program as earlier predicted.

Benchmark interest rates are 5 percent in New Zealand and 4.25 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., making the South Pacific nations attractive destinations for 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. The risk is currency market moves erase those profits.

Financing Costs

Financing costs in Australia declined. The difference between the rate Australian banks charge each other for three- month loans and the overnight swap rate fell to 51.8 basis points today from 58.4 basis points on Jan. 9. The gauge, a measure of cash scarcity, averaged 11 basis points in the five years before the credit crunch started in August 2007.

Australian government bonds headed for weekly gains. The yield on the 10-year note fell to 3.94 percent today from 4.12 percent on Jan. 9. It reached 3.84 percent yesterday, the lowest since at least 1969 according to data compiled by Bloomberg. The two-year yield dropped to 2.59 percent from 2.87 percent a week earlier. It touched 2.47 percent yesterday, the least since 1983.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 3.80 percent today from 4.28 percent at the end of last week.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net.