N.Z. Dollar Drops on Rate-Cut Concerns, Australia’s Declines

By Candice Zachariahs

April 27 (Bloomberg) -- The New Zealand dollar dropped for the first day in three as economists forecast the central bank will cut rates from a record low this week and amid concern swine flu will hurt tourism. Australia’s currency also fell.

New Zealand’s dollar dropped versus the yen and the greenback with economists projecting the benchmark rate will be lowered to 2.5 percent from 3 percent. Higher rates in New Zealand and Australia attract investors to the South Pacific nations’ assets. New Zealand’s currency also weakened as Health Minister Tony Ryall said 10 high school students who returned from Mexico are “highly likely” to have swine flu.

“The focus this week is going to be on the Reserve Bank of New Zealand with most economists picking 50 basis points,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “A comment on keeping rates lower for longer will cause the currency to depreciate.”

New Zealand’s dollar slid 1 percent to 56.68 U.S. cents as of 11:33 a.m. in Wellington from 57.24 cents in New York late last week. It dropped 1.5 percent to 54.80 yen. Australia’s currency declined 0.7 percent to 71.81 U.S. cents from 72.32 cents in New York. The currency fell 1.2 percent to 69.44 yen.

New Zealand’s dollar will trade between 54.60 and 58.30 U.S. cents while Australia’s will buy between 70 and 73.30 U.S. cents over the next two weeks, Allen said.

Swine Flu

President Barack Obama’s administration declared a public health emergency and released stockpiles of medicine because of a growing number of swine flu cases in the U.S. and Mexico. New illnesses were also confirmed in Canada, and suspected in Brazil and Europe and New Zealand.

“There are plenty of reasons to sell the New Zealand dollar and on the margin the swine flu news doesn’t help,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. The currency will “struggle this week” and could fall towards 55 cents, she said.

Futures traders decreased their bets the Australian dollar will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 17,250 on April 21, compared with net longs of 20,789 a week earlier.

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