Australia Dollar Set for First Weekly Decline in 2 Months

By Garfield Reynolds

April 24 (Bloomberg) -- Australia’s dollar fell, heading for its first weekly drop since February, amid concern the global slump will deepen. New Zealand’s dollar also declined.

Australia’s currency slid against the yen for a second week after Treasurer Wayne Swan said yesterday the “global recession has put a wrecking ball through revenue,” indicating the budget deficit may expand. New Zealand’s dollar fell for a third week before an April 30 central bank meeting at which economists estimate policy makers will cut benchmark rates already at a record low.

“Sentiment has definitely changed over the past week or so as people become more realistic about the fact that the world is still in recession and there’s no quick fix,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The currencies may edge back down after recent strength, with the New Zealand central bank set to cut rates and any Australian recovery likely to be a slow grind. The risks remain to the downside.”

Australia’s dollar traded at 71.43 U.S. cents as of 8:18 a.m. in Sydney from 71.48 cents yesterday and 72.25 cents on April 17 in New York. It was at 69.97 yen from 70.01 yen yesterday, heading for a 2.3 percent decline for the week. New Zealand’s currency was down 1 percent to 56.21 U.S. cents from a week ago. It bought 55.05 yen from 56.32 yen on April l7.

Australia’s currency may strengthen toward 72 U.S. cents at most today, and decline toward 69.5 cents next week, Hampton said. The New Zealand dollar may climb close to 57 U.S. cents today and drop to 54.90 cents or lower next week, she said.

Interest Rates

The Australian dollar has fallen against all but the South Korean won this week among the 16 most-traded currencies as the IMF said the central banks of Australia and New Zealand can cut interest rates further to cushion their economies from the global recession.

Australia’s central bank Governor Glenn Stevens cut his benchmark lending rate this month to a 49-year low of 3 percent, the same level set on March 12 by Alan Bollard, who heads the Reserve Bank of New Zealand. Both economies will contract this year before expanding again in 2010, the IMF predicts.

“The slump in demand in the U.S. and Asia and the drop in commodity prices are weighing on activity,” the IMF said. “Households are also suffering wealth reduction as equity markets and, to a lesser extent, house prices have fallen after rapid rises through 2007.”

New Zealand’s dollar fell this week against 14 of the 16 most-traded currencies before next week’s meeting of the Reserve Bank of New Zealand. Policy makers will lower the official cash rate by 0.5 percentage point to 2.5 percent on April 30, according to nine of the 11 economists surveyed by Bloomberg. The other two expect a 0.25 percentage point reduction.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net