By Candice Zachariahs Oct. 17 (Bloomberg) -- The Australian and New Zealand dollars rose this week for the first time in a month on speculation losses in the currencies were overdone after governments took measures to shore up the financial system. The Australian currency gained by a record against the yen on Oct. 14 after governments worldwide guaranteed bank deposits and debt and agreed to take stakes in lenders. The South Pacific nations' currencies fell the most in 25 years last week on concern the global economy is headed for a recession. ``There is scope to consolidate a bit because we have come a long way in a short time,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``But ultimately the trend for both currencies is lower in a global recession.'' The Australian dollar rose 8.3 percent this week to 70.10 yen at 4:31 p.m. in Sydney from 64.76 yen in New York on Oct. 10. It plunged 20.5 percent last week, the most since it started trading freely in 1983. New Zealand's dollar advanced 4.6 percent, after dropping 14.2 percent last week, to 62.59 yen from 59.86. Against the dollar, Australia's currency gained 7.2 percent to 68.93 U.S. cents from 64.32 cents on Oct. 10 in New York. It plunged last week by 16.9 percent. New Zealand's dollar rose 3.5 percent to 61.52 cents from 59.45. The Australian and New Zealand currencies strengthened this week against the greenback after falling to five-year lows on Oct. 8. The International Monetary Fund forecast that ``major advanced economies are now close to recession.'' Exports to Slow ``Consumption in the developed world is going negative in real terms,'' said Sydney-based Ray Attrill, global research director at Forecast Ltd., a research group that counts central banks among its subscribers. ``On that basis, Australia is going to get tarred with the same brush as some of the Asian currencies,'' as exports from emerging economies slow. Australia's 17 year-long economic boom has been fueled by demand for commodities from emerging markets like China and India. Raw materials make up 60 percent of Australia's exports and 70 percent of New Zealand's. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials slid for a third week. Melbourne-based BHP Billiton Ltd., the world's largest mining company, fell by the most in 21 years in trading yesterday, while crude oil, Australia's fourth-most valuable commodity export, dropped below $70 for the first time in 13 months. Volatility Rises The currencies fell as a gauge reflecting expectations for stock market price changes and a barometer of risk aversion, the VIX volatility index, rose to a record yesterday. ``We expect the New Zealand dollar to remain weak in the weeks and months ahead,'' wrote London-based Ned Rumpeltin, a currency strategist at Morgan Stanley, in a research note yesterday. ``Foreign exchange markets remain volatile, risk appetite fragile, and domestic economic weakness has shown few signs of abating.'' Traders are betting the Reserve Bank of New Zealand to reduce borrowing costs when it meets next on Oct. 23 to boost the nation's economy which is in its first recession in a decade. Governor Alan Bollard will cut rates by 1 percentage point to 6.5 percent accord to a Credit Suisse index based on overnight swaps trading. Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S, making them favorites with investors seeking higher returns. The risk in such trades is that currency volatility will erase profits. Australian government bonds fell for the first time in four days. The yield on the 10-year note rose 10 basis points, or 0.10 percentage point, to 5.350 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 0.803, or A$8.03 per A$1,000 face amount, to 99.204. New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.29 percent today from 6.34 percent yesterday. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Source