By Candice Zachariahs
Feb. 24 (Bloomberg) -- The Australian and New Zealand dollars fell against the greenback as a slump in U.S. and Asian stocks damped demand for the South Pacific nations’ higher- yielding assets.
Australia’s currency rallied from its biggest drop in two weeks against the yen before a government report tomorrow that economists say will show Japan’s trade deficit widened, pointing to further deterioration in its economy. Australia’s benchmark stock index closed at its lowest level in five years after the Standard and Poor’s 500 Index fell to the weakest since 1997.
“The currency market continues to trade off equity market risk sentiment,” said Nick Jonas, a currency trader at Suncorp- Metway Ltd. in Brisbane. “The short-term bias is to the downside,” for the Australian dollar.
Australia’s currency fell 0.4 percent to 64.75 U.S. cents as of 4:54 p.m. in Sydney from late in Asia yesterday. The currency bought 61.65 yen from 61.62 yesterday, after earlier sliding as much as 2.2 percent. The so-called Aussie will trade between 63.50 and 65 U.S. cents today, Jonas said.
New Zealand’s dollar declined 0.4 percent to 51.29 U.S. cents, and slumped to 48.72 yen from 48.83 yen.
The Australian currency has fallen 6.6 percent this year and New Zealand’s dollar has lost 11 percent as falling equities around the world reduced the appeal of so-called carry trades that use low-cost funds to buy the South Pacific nations’ bonds.
The risk with carry trades is that market moves can erase those profits. Interest rates are 3.25 percent in Australia and 3.5 percent in New Zealand, compared with as low as zero in the U.S. and 0.1 percent in Japan.
Rate Cuts
The central banks of both Australia and New Zealand will cut their benchmark interest rates to 2.75 percent when they meet March 3 and March 12, respectively, according to the median estimates of separate surveys of economists by Bloomberg News.
Next month’s reduction may bring the Reserve Bank of Australia near the end of its most aggressive round of policy easing, interest-rate swaps show.
The RBA will drop its cash rate target by half a percentage point at its next meeting on March 3, according to a Credit Suisse Group index based on swaps trading. The rate will be 2.25 percent in 12 months, a separate index shows. The lowest benchmark borrowing cost in the Reserve Bank of Australia’s 50- year history is 2.89 percent in January 1960. The RBA started setting a cash-rate target in 1990.
Australian government bonds gained for a third day. The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 4.12 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security maturing in March 2019 rose 0.244, or A$2.44 per A$1,000 face amount, to 109.187.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.27 percent from 3.28 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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