Australia, N.Z. Dollars Decline on Week as Recession May Deepen

By Patricia Lui and Garfield Reynolds

April 17 (Bloomberg) -- The Australian and New Zealand dollars weakened, heading for their biggest weekly drop against the yen in two months as slower growth in China revived concerns the global recession may deepen.

The currencies declined against the greenback as U.S. housing starts fell more than economists expected and a record number of people collected U.S. jobless benefits, eroding demand for high-yield assets. They extended declines after European Central Bank President Jean- Claude Trichet said the central bank must do everything possible to restore confidence, signaling further interest-rate cuts.

“The U.S. earnings season started off pretty strongly but the biggest drag on the Australian and New Zealand dollars this week was China’s GDP,” said David Forrester, a strategist at Barclays Capital in Singapore. “There’s quite a bit of yen cross unwinding in both currencies as we are running into a big week next week for U.S. earnings especially non-financial earnings. People are scaling back and taking some profit.”

Australia’s dollar slid to 71.51 yen as of 3 p.m. in Sydney, down 0.8 percent from the end of last week, the biggest drop since the week ended Feb. 13. It declined to 71.89 U.S. cents from 72.06 cents yesterday. New Zealand’s currency dropped 2.8 percent this week to 56.83 yen, the largest slump since Jan. 23. It was trading at 57.16 U.S. cents from 57.28 cents yesterday and 58.35 cents on April 10.

The Australian currency headed for its first weekly decline against the U.S. dollar since February, declining 0.1 percent.

Kiwi More Pressured

New Zealand’s non-tradable inflation, a measure of prices not influenced by currency fluctuations and fuel, rose 0.7 percent in the three months to Dec. 31, the least in five quarters.

“The kiwi faces more pressure due to expectations that the Reserve Bank of New Zealand will embark on more aggressive policy easing,” Forrester said.

Consumer prices rose 3 percent in the year ended March 31, Statistics New Zealand said in Wellington today. Inflation slowed from 3.4 percent in the year to December and matched the median estimate in a Bloomberg News survey of nine economists. From the fourth quarter, prices rose 0.3 percent.

“New Zealand inflation should still be on the Reserve Bank’s radar so further rate cuts will come at a slower pace,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “There may also be concerns that Australia’s underlying inflation is going to remain stronger than some are expecting.”

‘Severe Recession’

The “severe” global recession will last throughout 2009, Pacific Investment Management Co. said in a report on its Web site on the outlook for markets in the second quarter. Newport Beach, California-based Pimco is manager of the world’s biggest bond fund.

Australia’s dollar may trade between 72 and 72.5 U.S. cents while New Zealand’s is likely to hover around 57.40 to 57.50 U.S. cents, Carr said.

U.S. housing starts fell 11 percent to a 510,000 annual rate, lower than estimated by economists surveyed, the Commerce Department said yesterday. The number of people collecting U.S. benefits jumped to a record 6.02 million in the week to April 5, according to a Labor Department report.

“The latest release questions the belief that a strong bottom is forming in the U.S. housing sector, leave alone expectations of a recovery in the near future,” Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets, wrote in a research note yesterday. The Australian and New Zealand dollars “underperformed during the last 24 hours after disappointing Chinese GDP data.”

Australian Bonds

Australian government bonds fell for the first time in three days, pushing the 10-year yield up one basis point, or 0.01 percentage point, to 4.52 percent. The price of the 5.25 percent security due in March 2019 slid 0.08, or 80 Australian cents per A$1,000 face value, to 105.81, Bloomberg data show.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, advanced to 3.68 percent from 3.64 percent yesterday.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.netGarfield Reynolds in Sydney at greynolds1@bloomberg.net.