Australia, New Zealand Dollars Slip as G-7 Calls Slump ‘Severe’

By Candice Zachariahs

Feb. 16 (Bloomberg) -- The Australian and New Zealand dollars declined after the Group of Seven finance ministers said the “severe” global downturn would persist through most of 2009, intensifying speculation investors will dump riskier assets.

The currencies slipped after Japan’s economy contracted by the most since the 1974 oil shock, increasing demand for safe- haven currencies such as the yen and the U.S. dollar. New Zealand’s dollar fell after the nation’s services industry shrank for a 10th straight month in January.

“Both Aussie and kiwi are risk-sensitive, growth-sensitive currencies,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington, referring to the currencies by their nicknames. “Any time we see an increased focus on a gloomy global outlook, that’s going to be negative for the currencies.”

Australia’s dollar fell 0.9 percent to 65.21 U.S. cents at 11:59 a.m. in Sydney from 65.81 cents late in New York last week. The currency dropped 0.9 percent to 59.79 yen.

New Zealand’s dollar weakened 0.4 percent to 52.09 U.S. cents and declined 0.6 percent to 47.77 yen.

The Australian currency may fall toward 64.75 U.S. cents over the next few days and New Zealand’s may decline toward 51.50 cents, according to Hampton.

The G-7’s finance ministers and central bankers said in a statement released after talks in Rome on Feb. 14 that they were working to restore market confidence and revive the world economy.

Traders’ Bets

Japan’s economy shrank at an annual 12.7 percent pace last quarter amid an unprecedented collapse in exports and production. Gross domestic product fell for a third straight quarter in the three months ended Dec. 31, the Cabinet Office said in Tokyo.

Futures traders increased bets the Australian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a fall in the Australian dollar compared with those on a gain --so- called net shorts -- was 5,848 on Feb. 10, compared with net shorts of 5,119 a week earlier.

Australian government bonds declined for a second day, pushing the yield on the 10-year note up six basis points, or 0.06 percentage point, to 4.3 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.516, or A$5.16 per A$1,000 face amount, to 107.668.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.32 percent.

The G-7 oversees about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.

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