By Candice Zachariahs
Feb. 27 (Bloomberg) -- The Australian and New Zealand dollars headed for their biggest monthly advance against the yen since at least 2000 as concerns intensify that the recession in the world’s second-largest economy is deepening.
Australia’s currency headed for a monthly gain against the U.S. dollar as reports this week showed bank lending and capital spending in Australia were stronger than expected, bolstering speculation the central bank will slow the pace of interest-rate cuts. Japan’s manufacturers cut production by a record 10 percent in January and household spending plunged, adding to evidence that the economy is in its worst recession in 60 years.
“What we’re seeing in Japan’s numbers is a massive hit from the dislocation in global trade,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “We’re looking at a new wave of investment heading out of Japan, perhaps seeking higher yield elsewhere.”
Australia’s currency declined to 63.09 yen at 4:06 p.m. in Sydney, from 63.46 late yesterday in Asia. It has gained 10 percent in February, the most since August 1995. The local currency fell to 64.57 U.S. cents from 64.82 cents yesterday, paring its advance since Jan. 30 to 1.3 percent.
New Zealand’s dollar slid to 49.48 yen from 49.92 yesterday, reducing this month’s advance to 7.9 percent, the biggest jump since December 2000. The currency was at 50.61 U.S. cents from 51 cents yesterday and 50.92 cents at the end of last month.
Australian bank lending rose 0.6 percent in January, twice the median gain expected by 18 economists surveyed by Bloomberg News, the Reserve Bank of Australia said in Sydney today.
Interest Rates
Benchmark interest rates are 3.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S. That is attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Australia’s dollar may advance toward 66.50 U.S. cents if the Reserve Bank of Australia leaves its benchmark rate unchanged when it meets March 3, Morriss said. The median estimate of 17 economists polled by Bloomberg News is for a reduction to 2.75 percent.
The currency has fallen 6.7 percent this year and New Zealand’s dollar has declined 12 percent against the greenback as declining interest rates and concern over a worsening global outlook prompted investors to sell the nations’ assets.
“The exchange rate is working for us,” Reserve Bank of New Zealand governor Alan Bollard said in a speech to a conference in Auckland today. “It is helping cushion the shocks, it’s helping make us more competitive.”
New Zealand
Bollard will cut borrowing costs to 2.75 percent on March 12, according to the median estimate of 11 economists surveyed by Bloomberg News, to boost the economy out of its fifth quarter of negative growth.
New Zealand’s home-building approvals fell to a record low in January as a prolonged recession and the prospect of job losses kept consumers out of the property market.
Approvals fell 13 percent from December, when they declined 7.1 percent, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. There were 949 approvals, the lowest since records began in 1982, the agency said.
“It looks to be a deepening recession in New Zealand, which argues for further central bank rate cuts,” said Su-Lin Ong, a senior economist at RBC Capital Markets Ltd. in Sydney. The RBNZ governor is “continuing to give the green light to selling the currency by emphasizing that it plays a major role in the economy’s adjustment.”
Australian government bonds fell. The yield on 10-year notes advanced 14 basis points, or 0.14 percentage point, to 4.39 percent, the highest in three weeks, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 1.21, or A$12.10 per A$1,000 face amount, to 106.92. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.23 percent from 3.27 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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