Australian, N.Z. Dollars Fall a Second Day as Swine Flu Spreads

By Candice Zachariahs

April 28 (Bloomberg) -- The Australian and New Zealand dollars fell for a second day on concern the spread of swine flu from Mexico will hurt tourism and deepen the global recession, spurring investors to sell riskier assets.

Australia’s currency dropped below 70 U.S. cents for the first time in a week after a Wall Street Journal report said U.S. regulators told Bank of America Corp. and Citigroup Inc. that they need more capital. New Zealand’s dollar slid the most in a week versus the greenback and yen. Ten students suspected of having swine flu in New Zealand will likely be confirmed as having the virus, a person familiar with the tests said.

“Higher risk aversion is being prompted by persistent concern over swine flu,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. “You’ve also got that Wall Street Journal article headlining that Citibank and Bank of America are being pushed by U.S. regulators to raise more capital. That’s definitely causing this next leg down.”

Australia’s currency slid 1.2 percent to 70.14 U.S. cents at 4:15 p.m. in Sydney and touched 69.98 cents, the lowest since April 21. It fell 2.2 percent to 67.19 yen from yesterday in New York. New Zealand’s dollar dropped 1.9 percent, the most in a week, to 55.49 U.S. cents, and fell to 53.17 yen from 54.74 yen.

The Australian dollar will likely find buyers at 69.50 U.S. cents and New Zealand’s currency should be supported at 54.80 cents, Trinh said.

Lower Rates

Demand for the currencies weakened after the World Health Organization raised its pandemic alert to an unprecedented level as the U.S. confirmed 40 cases of the flu and Mexico’s toll of flu-related deaths reached 152. New Zealand Health Minister Tony Ryall said officials are monitoring 56 people displaying symptoms indicating the possibility of swine flu after visiting Mexico or the U.S. in the past two weeks.

“The swine flu concerns are going to provide problems for countries like New Zealand and Australia that rely on tourism,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. “The currencies will stay under pressure.”

New Zealand’s currency also weakened on speculation the central bank will cut interest rates at a policy meeting this week. There is a 40 percent chance of a 50 basis point cut at the central bank’s next meeting on April 30, a Credit Suisse index based on swaps trading shows. A basis point is 0.01 percentage point.

Key interest rates are 3 percent in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to assets in the two South Pacific nations.

‘Brutal Impact’

“What will be important is how the bank talks about the long-end of the curve,” Sinton said. “They are likely to make comments about keeping rates lower for longer.”

New Zealand’s dollar has lost 29 percent against the greenback over the past 12 months, the worst performance among major currencies, as central bank Governor Alan Bollard cut the benchmark rate six consecutive times.

The so-called Aussie also declined today after Treasurer Wayne Swan told Australian Broadcasting Corp. radio the economy would grow slowly for some time and the global recession will have a “brutal impact” on government revenue.

Gains in the Australian dollar have been limited by sellers at the 200-day moving average of 72.22 cents, New York-based Tom Fitzpatrick and London-based Shyam Devani, technical analysts at Citigroup, wrote in a research note yesterday. “The setup is bearish,” and Australia’s currency may drop to 68.50 cents in the days ahead, they wrote.

Australian government bonds advanced for a second day. The yield on the benchmark 10-year note fell five basis points to 4.42 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.38, or A$3.80 per A$1,000 face amount, to 106.58.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.63 percent from 3.62 yesterday.

To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net