Australia, N.Z. Dollars May Extend Declines as U.S. Stocks Fall

By Garfield Reynolds

April 23 (Bloomberg) -- Australia and New Zealand’s dollars may extend declines after U.S. stocks fell on concern government stress tests will reveal weakness in banks, sapping optimism the global slump may ease.

The currencies weakened yesterday as the International Monetary Fund said the Australian and New Zealand economies will shrink in 2009 at the fastest pace in more than 20 years. Treasurer Wayne Swan called the IMF estimates “bleak,” today in a radio interview on the Australian Broadcasting Corp.

“There was a disappointing close last night for U.S. equities and commodities were a bit weaker, so that sapped demand for the two currencies,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The Australian dollar has reached something of an intermediate top and will struggle to break above 72.50 U.S. cents short term.”

Australia’s dollar traded at 70.57 U.S. cents as of 8:02 a.m. in Sydney from 70.54 cents yesterday in New York, when it slid 0.8 percent. It was at 69.13 yen from 69.14 yen. New Zealand’s currency bought 55.51 U.S. cents from 55.53 cents. It was at 54.38 yen from 54.44 yen.

The Standard & Poor’s 500 Index lost 0.8 percent yesterday as Morgan Stanley, the fifth-biggest bank by assets, tumbled 9 percent after posting a bigger-than-estimated loss. KeyCorp tumbled 13 percent after BMO Capital Markets said credit problems are spreading.

Interest Rates

The Australian and New Zealand dollars may extend this week’s declines against the U.S. dollar after the IMF said the countries’ central banks 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, where rates are now at a record low. 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.”

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