By Candice Zachariahs
April 1 (Bloomberg) -- The Australian and New Zealand dollars slid on concern weakening economic growth will lead the two nations’ central banks to lower interest rates, sapping the appeal of their assets.
The currencies weakened against the greenback and the yen as U.S. lawmakers said the Obama administration is prepared to let General Motors Corp. and Chrysler LLC go bankrupt. New Zealand’s dollar dropped as central bank Governor Alan Bollard expressed concern about gains in long-term interest rates. Australian retail sales fell by the most since 2000, spurring speculation the central bank may lower its benchmark April 7.
“The retail spending data shows consumers are extremely cautious and really leaves the door open for a rate cut from the Reserve Bank of Australia next week,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “Bollard’s comments triggered the sell-off in” New Zealand’s dollar which may fall toward 55 U.S. cents, while Australia’s dollar may decline to 68 U.S. cents, she said.
Australia’s dollar weakened 0.4 percent to 68.82 U.S. cents as of 4:01 p.m. in Sydney from 69.13 cents late in New York yesterday. It depreciated 0.8 percent to 67.85 yen.
New Zealand’s dollar fell to 55.62 U.S. cents from 57.08 U.S. cents before Bollard’s comment and 55.95 cents late in New York. It bought 54.84 yen from 55.37 yen yesterday.
Gradual Recovery
“We are projecting interest rates to remain at relatively low levels for an extended period,” Bollard said today. “The economic recovery is expected to be very gradual.”
Benchmark interest rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets.
“There has been a panic rise in interest rates which stemmed from the view that the RBNZ wasn’t going to cut rates to as low as previously thought and hold them as low as thought,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. “This removes the uncertainty around the easing track.”
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.69 percent from 3.93 percent before the comments. It had climbed as high as 4.12 percent on March 30, after the bank cut its benchmark on March 12 by less than some economists forecast.
Interest Rates
Traders raised bets for a 25 basis point cut by the RBNZ when it meets next April 30 to 100 percent from 72 percent at the start of the week, according to a Credit Suisse index based on swaps trading. Economists expect a reduction to 2.5 percent according to the median forecast of 13 economists surveyed by Bloomberg News. The bank has lowered its benchmark 5.25 percentage points since July.
The Australian dollar weakened 30 percent since a 25-year high reached July 15 as the country’s central bank cut interest rates by four percentage points. Four economists forecast the RBA will leave rates unchanged when it meets April 7, two expect a 25 basis point reduction and 10 predict a 50 basis point cut, according to a separate Bloomberg survey.
A decline in New Zealand’s cash rate to 2.5 percent, “further below the 3.25 percent in Australia, would argue for the Australian dollar above NZ$1.25,” wrote John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., in a note to clients today. The so-called Aussie advanced as high as NZ$1.2388, the most since March 25.
Retail Sales, Manufacturing
Australian retail sales declined 2 percent in February, the first drop in five months, the Bureau of Statistics said in Sydney today. The median forecast of 18 economists surveyed by Bloomberg News was for a 0.5 percent drop. Manufacturing contracted for a 10th month in March as new orders fell, the Australian Industry Group and PricewaterhouseCoopers said today.
Australia today sold A$600 million ($414 million) of bonds maturing February 2017 at a weighted average yield of 4.29 percent. The government received bids for 3.7 times the securities on offer.
Australian government bonds advanced for a third day. The yield on 10-year notes fell four basis points, or 0.04 percentage point, to 4.39 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.31, or A$3.10 per A$1,000 face amount, to 106.91.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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