Australian, N.Z. Dollars Fall Most in Week as Asia, U.S. Slump

By Candice Zachariahs

Feb. 26 (Bloomberg) -- The Australian and New Zealand dollars fell the most in a week after reports in Asia, Europe and the U.S. boosted concerns the global recession is deepening.

The Australian currency rose versus the yen after business investment in the South Pacific nation unexpectedly increased, supporting the central bank’s view that the nation’s economy will outperform its peers. New Zealand’s dollar slid as business confidence fell to the second-worst on record in February.

“In the near-term, the severity and breadth of the global slowdown and the shocking numbers we’re seeing out of Asia means we’re going to see worse numbers” in Australia, said John Horner, a currency strategist at Deutsche Bank AG in Sydney. “We would expect the Australian dollar to decline under 60 U.S. cents in the months ahead.”

Australia’s dollar traded at 64.89 U.S. cents as of 4:31 p.m. in Sydney from 65.36 cents late in Asia yesterday. It fell to 64.85 cents before the business spending report. The currency advanced 0.2 percent to 63.46 yen.

New Zealand’s dollar slid 1.2 percent to 51.02 U.S. cents from 51.66 in Asia yesterday. It bought 49.91 yen from 50.09.

Australian capital spending climbed 6 percent in the fourth quarter from the previous three months, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 3 percent drop.

“This is another factor which suggests Australia’s economy should avoid negative fourth-quarter growth which is very different to what we’re seeing in the major Group of Seven economies,” said Richard Grace, a chief currency strategist at the Commonwealth Bank of Australia in Sydney. “The Aussie should grind higher,” he said, using the currency’s nickname.

Interest Rates

Australia’s dollar may gain toward 65.50 cents by week-end, said Grace. CBA had forecast a 2 percent increase in investment and projects the Reserve Bank of Australia will keep interest rates unchanged at 3.25 percent when it meets March 3.

Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S. attract investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits. The central banks of Australia and New Zealand are expected to lower their benchmark rates to 2.75 percent when they meet on March 3 and March 12, respectively.

The currencies fell today as U.S. purchases of previously owned homes slid 5.3 percent to an annual rate of 4.49 million, the fewest since 1997. Economists had forecast resales would rise to a 4.79 million rate, according to a Bloomberg survey.

Germany, Korea

German exports slumped 7.3 percent in the fourth quarter, causing Europe’s largest economy to contract the most in 22 years. In South Korea, Australia’s third largest export market, manufacturers’ confidence stayed near a record low and Singapore said its economy shrank the most in 33 years last quarter.

“Amid worries about the global outlook investors are favoring the relative safety of the U.S. dollar,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.

A net 20.5 percent of companies surveyed in New Zealand this month expect sales and profits to decline over the next 12 months from the record-low 21.5 percent expecting a fall in December, according to a report released by ANZ National Bank Ltd. in Wellington today. There was no survey in January.

New Zealand Pressure

The survey should keep pressure on the RBNZ to cut interest rates, wrote Su-Lin Ong, an economist at RBC Capital Markets Ltd. in Sydney.

“Should the RBA hold steady next week, it is unlikely that the RBNZ will be brave enough to do much more than a 50 basis point cut,” she said.

Australian government bonds advanced with the yield on 10- year notes falling one basis point, or 0.01 percentage point, to 4.25 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.11, or A$1.1 per A$1,000 face amount, to 108.08.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.27 percent from 3.30 yesterday.

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