By Candice Zachariahs Dec. 2 (Bloomberg) -- The Australian dollar rallied after the central bank lowered interest rates 1 percentage point, the fourth cut since September, seeking to help the nation avoid a recession. New Zealand’s dollar fell. The currencies declined against the yen as Asian and U.S. equities tumbled after a panel said the world’s largest economy entered a recession a year ago, reducing demand for higher- yielding assets. The Reserve Bank of New Zealand, which meets Dec. 4, is forecast by economists to slash its benchmark 1.5 percentage points as policy makers in the two South Pacific nations’ attempt to boost domestic growth. “For the Aussie, in the short-term with the deterioration we’re seeing in global growth, strength much north of 64.5 to 65 U.S. cents represents a selling opportunity,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. “We still expect the RBA to cut a further 75 basis points in the February-March period.” Australia’s currency was little changed at 64.06 U.S. cents as of 3:55 p.m. in Sydney from 64.07 cents late in Asia yesterday, after touching as low as 63.36 cents. The currency slipped 0.4 percent to 59.86 yen. New Zealand’s dollar slid 0.9 percent to 53.04 U.S. cents from 53.54 cents in Asia yesterday. It bought 49.57 yen from 50.22. “Weighing up the international and domestic developments of recent months, the board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting,” RBA Governor Glenn Stevens said today in a statement. Today’s cut extends the RBA’s biggest easing cycle since a recession in 1991. The bank has slashed rates 300 basis points to 4.25 percent from a 12-year high of 7.25 percent. Equities Fall The Australian and New Zealand dollars slipped today against the yen as Australian and Japanese equities followed U.S. stocks lower after declines in American and European manufacturing pointed to a deepening global recession. The National Bureau of Economic Research, the panel that dates U.S. business cycles, said the U.S. is in its longest recession since 1982. “Much more important is the deterioration in equity markets that we saw overnight, the weakness in commodities -- all pointing toward renewed Australian dollar weakness,” said John Horner, a currency strategist at Deutsche Bank AG in Sydney. “We continue to look for a run below 60 cents in the next couple of weeks.” Carry Unwind The Australian dollar has dropped 26 percent against the dollar and 35 percent versus Japan’s yen since September when credit markets froze and equities tumbled after the collapse of Lehman Brothers Holdings Inc. New Zealand’s currency has fallen 24 percent and 33 percent against the dollar and yen in the same period. Higher interest rates in Australia and New Zealand, compared with 0.3 percent in Japan and 1 percent in the U.S., prompt investors to invest in the South Pacific nations’ assets with low-cost funds. The risk in such trades is that currency market moves will erase profits. The Reserve Bank of New Zealand will cut the official cash rate to 5 percent, according to 10 of 17 economists surveyed by Bloomberg. Seven forecast a 1 percentage point reduction. Australian government bonds advanced. The yield on the 10- year note fell 11 basis points, or 0.11 percentage point, to 4.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.957, or A$9.57 per A$1,000 face amount, to 106.840. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.87 percent from 4.97 yesterday. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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