The Australian and New Zealand dollars declined as Asian stocks fell for a fourth day, damping demand for higher-yielding assets. The currencies weakened as reports showed U.S. home prices plunged at the fastest pace in at least four decades and confidence among Japanese manufacturers declined the most on record. A deepening global recession may lead to interest-rate cuts in Australia and New Zealand, eroding their appeal as a destination for funds borrowed in nations such as Japan that have lower borrowing costs. “The equity and currency markets have been moving in step,” said Charles Wiggins, corporate risk manager at Custom House Global Foreign Exchange in Sydney. The Australian dollar will trade between 66 and 69 U.S. cents this month, he forecast. Australia’s currency fell 0.9 percent to 67.76 U.S. cents as of 3:24 p.m. in Sydney from 68.34 cents late in Asia yesterday. The currency lost 0.4 percent to 61.37 yen. New Zealand’s dollar declined 0.5 percent to 56.80 U.S. cents from 57.07 in Asia yesterday. It bought 51.43 yen from 51.47. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., a premium that has helped draw funds to the South Pacific nations. Liquidity in the foreign-exchange markets will decline due to the Christmas holidays, said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. The Australian dollar will find support at 67.68 cents and New Zealand’s currency at 55.88 cents, he said. Cheaper Commodities The Australian currency has dropped 20 percent against the U.S. dollar in 2008 and 37 percent versus the yen as falling commodity prices amid a global recession made the nation’s assets less attractive. New Zealand’s currency fell 23 percent versus the U.S. dollar and 40 percent against the yen. Australia’s currency may add to this year’s slide in the first quarter of 2009, Sydney-based Jonathan Cavenagh, a currency strategist at Westpac Banking Corp., wrote yesterday in a research note. “We expect that the maximum level of bearishness for the Australian dollar will be reached around the time of the contract negotiations for bulk commodities, which is scheduled for April,” he said. Raw materials account for 60 percent of Australia’s exports. The currency will likely trade around the 5 1/2-year low of 60.10 cents it reached on Oct. 28 and find a floor as low as 55 cents, he wrote. Second-Half Recovery Cavenagh forecast that the Aussie, as the currency is known, will recover in the second half of 2009 as policy initiatives around the world lead to a pick-up in growth. “We expect January will bring increased flows to currencies like the Australian dollar” that have higher yields, Robert Sinche, New York-based head of global currency strategy at Bank of America Corp., wrote in a research note dated Dec. 23. Investors should buy the Australian dollar versus Canada’s currency as it may strengthen 9 percent, Bank of America and Westpac Banking Corp. said in notes yesterday. Sinche recommended buying Australia’s currency at 82.60 Canadian cents, saying it may strengthen to 90 cents. He advised exiting the trade if it falls to 80.94 Canadian cents. The Australian dollar traded at 82.49 Canadian cents from 83.07 late in Asia yesterday. Westpac also advised buying the Aussie versus the euro, predicting an 11 percent advance. Investors should buy the Australian dollar on dips toward 0.48 euro with an initial target of 0.54, Cavenagh wrote. They should exit the bet if the Aussie weakens to below 0.47 euro, he wrote. It recently traded at 0.4854 euro from 0.4887 yesterday. Bonds Gain Australian government bonds advanced for a second day. The yield on the 10-year note fell 2 basis points, or 0.02 percentage point, to 4.09 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.128, or A$1.28 per A$1,000 face amount, to 109.592. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, slid to 4.49 percent from 4.51 yesterday.

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