New Zealand’s dollar dropped to a six-year low against the dollar and its weakest in almost seven years versus the yen as central bank Governor Alan Bollard signaled he may cut interest rates from a record low. Australia’s currency also fell. Australia’s dollar slumped to a one-week low as bank lending slid for the first time since 1992, raising speculation its central bank will reduce borrowing costs on Feb. 3 to 3.25 percent, the lowest since it started setting targets in 1990. The currencies fell as a report showed a record 4.776 million Americans collected unemployment benefits in the week to Jan. 17. “The New Zealand dollar has a long way to fall,” said Cameron Bagrie, chief economist at ANZ National Bank Ltd. in Wellington. “The Reserve Bank of New Zealand has more work ahead of it.” New Zealand’s dollar dropped as low as 50.79 U.S. cents, the weakest since December 2002, before trading at 51.03 cents as of 3:21 p.m. in Sydney and has fallen 12 percent this month. It slid for a third day to 45.61 yen and has fallen 13 percent in January. The currency traded at NZ$1.2631 per Australian dollar after yesterday touching NZ$1.2804, the lowest since August 2008. The New Zealand dollar may fall to as low as 40 cents against the greenback and NZ$1.35 versus the Australian dollar this year, Bagrie said. Australia’s currency traded at 64.48 U.S. cents and has fallen 6.8 percent this month. The currency slipped 7.7 percent in January to 57.60 yen. Tough Year Finance Minister Bill English said the nation faces a “tough” year ahead as home-building approvals fell 6 percent in December to the lowest since records began in 1982. Total loans provided by banks and other finance companies declined 0.3 percent from November, the Reserve Bank of Australia said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 0.5 percent gain. Traders are betting that the RBNZ will cut a further 1 percentage point to 2.5 percent, according to a Credit Suisse Group index based on overnight swaps trading. “Lest there be any doubt, the tool box is by no means empty,” RBNZ Governor Bollard said in a speech today in Christchurch. “If we need to, there is still room for us to cut the cash rate further in response to adverse economic developments.” Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attract investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Japanese Investors The South Pacific currencies are likely to remain under pressure in February and March as Japanese investors repatriate funds ahead of their fiscal year-end on March 31, wrote Sydney- based John Horner and New York-based Adam Boyton, currency strategists at Deutsche Bank AG, in a note dated yesterday. “We remain bearish” on the Australian and New Zealand dollars, particularly against the yen, they wrote. The RBA is expected to cut its benchmark by 1 percentage point next week from 4.25 percent, according to a separate Credit Suisse index. The RBA has lowered its cash target by three percentage points since September to boost domestic demand as the global slowdown weighs on equity and commodity prices. Rio Tinto Group, the world’s third-largest mining company, yesterday agreed to cut coking coal prices for India’s JSW Steel Ltd. by 43 percent for the last three months of an annual contract after global demand slumped. Australia, the world’s biggest coal exporter, relies on raw materials for 60 percent of export revenue. Australian government bonds declined for a second day with the yield on the 10-year note rising one basis point, or 0.01 percentage point, to 4.08 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.069, or A$0.69 per A$1,000 face amount, to 109.573. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped to 3.25 percent from 3.33 yesterday.

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