By Candice Zachariahs Dec. 23 (Bloomberg) -- New Zealand’s dollar fell for a third day after a government report showed the economy contracted in the last quarter, extending the nation’s first recession in a decade. The Australian dollar advanced. New Zealand’s currency, which has slumped 25 percent versus the U.S. dollar this year, also declined on speculation borrowing costs will be lowered to help revive the economy. Australia’s dollar gained after prices of commodities it exports rose and China, the nation’s biggest trading partner, cut interest rates to spur spending. “New Zealand is in a recession and that gives limited upside to the kiwi,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “Overall, I’d prefer to be a seller on the rally than a buyer on the dip.” He expects the currency, nicknamed the kiwi, to trade between 56 and 59 U.S. cents over the Christmas period. New Zealand’s dollar slid as much as 0.7 percent before trading at 57.41 U.S. cents as of 4:29 p.m. in Sydney, down from 57.46 late yesterday in Asia. It bought 51.83 yen from 51.69. Australia’s currency rose 0.2 percent to 68.42 U.S. cents from 68.26 cents late in Asia yesterday. The currency advanced 0.5 percent to 61.66 yen. “We’re seeing improved price action for commodities in general and that’s traditionally something that’s supportive for the Australian dollar,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. The currency will trade between 67 and 70 U.S. cents into month-end, he said. Currency moves may be exaggerated due to thin volumes during the year-end holiday period, said Rennie. The Group of Seven industrialized nations each have at least one public holiday this week and financial markets in most member states will be closed both Dec. 25 and Dec. 26. New Zealand Recession New Zealand’s gross domestic product declined 0.4 percent in the three months ended Sept. 30 from the second quarter, Statistics New Zealand said today. New Zealand central bank Governor Alan Bollard, who predicted a 0.3 percent contraction, is forecast to cut rates next month to the lowest since the nation began using a benchmark in 1999. “The worrying aspect is that despite weakness in demand there’s a huge buildup in inventories” which will be a “drag” on growth in future quarters, said Khoon Goh, a senior economist at ANZ Bank Ltd. in Wellington. Bollard has cut the benchmark rate 3.25 percentage points since July to 5 percent as the nation slipped into recession. Traders are betting borrowing costs will be lowered a further 1.14 percentage points in the next 12 months, according to a Credit Suisse index based on overnight swaps trading. Copper, Gold Australia’s dollar advanced as the People’s Bank of China yesterday lowered its one-year lending rate by 0.27 percentage point to 5.31 percent and reduced the proportion of deposits lenders must set aside as reserves by 0.5 percentage point. Copper rose in New York on speculation the bank’s actions will help boost demand for the metal. Gold futures for February delivery rose $9.80, or 1.2 percent, to $847.20 an ounce on the New York Mercantile Exchange’s Comex division. The metal gained 11 percent in the previous two weeks. Raw materials account for about 60 percent of Australia’s exports. Australian government bonds advanced. The yield on the 10- year note fell three basis points, or 0.03 percentage point, to 4.1 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.287, or A$2.87 per A$1,000 face amount, at 109.525. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped for a sixth day, sliding to 4.51 percent from 4.56 percent yesterday. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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