By Candice Zachariahs
March 4 (Bloomberg) -- Australia’s dollar touched a one- month low after the economy shrank for the first time in eight years, increasing pressure on the central bank to add to a record round of interest-rate cuts. New Zealand’s dollar slid.
Australia’s currency also fell versus the yen after the Bureau of Statistics said Australia’s gross domestic product fell 0.5 percent in the fourth quarter, when analysts had forecast 0.2 percent growth. The currencies pared losses on speculation Chinese Premier Wen Jiabao will announce a new stimulus package tomorrow.
The GDP numbers “dealt quite a severe blow to the Aussie dollar, more so because the risk was skewed to the upside,” said Mitul Kotecha, Hong Kong-based head of global foreign- exchange strategy at Calyon, the investment-banking unit of French bank Credit Agricole SA. “The general environment continues to be one of high risk aversion, a strong U.S. dollar and that’s playing negatively for the Aussie as well.”
Australia’s currency fell to as low as 62.86 U.S. cents, the weakest since Feb. 3, before trading down 1.4 percent at 63.32 cents as of 2:57 p.m. in Sydney, from late in Asia yesterday. The currency slumped 0.6 percent to 62.30 yen.
New Zealand’s dollar slid 0.6 percent to 49.52 U.S. cents. It advanced 0.1 percent to 48.74 yen.
The Australian dollar may trade between 62 U.S. cents and 65.25 cents for the next month, Kotecha said.
Only three of 23 economists polled by Bloomberg News forecast a contraction in fourth-quarter growth, three expected a flat reading and 17 estimated positive growth.
Closer to Recession
“It’s looking like we are that much closer to a recession so we’d have to assume that the short-term prospects for the Australian dollar are negative,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney.
Australian demand for services shrank in February at a faster pace and New Zealand’s commodity export price index fell a seventh straight month, plunging 31 percent from a year ago.
The slide in New Zealand raw-materials prices to the lowest since March 2006 was led by wool, beef and seafood, as the index dropped 4.6 percent from January when it declined 4.3 percent, ANZ National Bank Ltd. said today in Wellington.
The Australian and New Zealand currencies earlier weakened after Federal Reserve Chairman Ben S. Bernanke said the banking system hasn’t stabilized.
Bernanke, IMF
Bernanke, testifying before the Senate Budget Committee, spurred concern that the U.S. government won’t be able to shore up a financial system battered by $1.1 trillion in global credit losses. Policy makers may need to take aggressive measures even at the cost of soaring fiscal deficits, he said, according to his Senate testimony.
The International Monetary Fund sees a “serious risk” of a contraction in the global economy this year and will probably cut its 0.5 percent growth estimate in April, Managing Director Dominique Strauss-Kahn said yesterday in Johannesburg.
A deepening global recession means Australia’s economy is likely to experience short-term weakness, central bank Assistant Governor Malcolm Edey said.
“The international deterioration has been so abrupt that it won’t be possible to avoid some short-term weakness here,” Edey said in a speech in Sydney today. “There’s no doubt 2009 is shaping up as a very difficult year for the global economy.”
Global trade looks “pretty terrible” this year, said Pascal Lamy, director-general of the World Trade Organization, said today at the Australian Bureau of Agricultural and Resource Economics conference today in Canberra.
Australian government bonds fell for a second day. The yield on 10-year notes rose three basis point, or 0.03 percentage point, to 4.34 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.24, or A$2.40 per A$1,000 face amount, to 107.33.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, advanced to 3.27 percent from 3.24 percent yesterday.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net
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