The Australian and New Zealand dollars are set to decline this quarter on concern the economic slowdown is deepening in the U.S. and Europe, reducing demand for risk. The currencies pared this month’s advance against the greenback after the U.S. gave General Motors Corp. and Chrysler LLC deadlines to restructure or lose government aid and Standard & Poor’s cut Ireland’s AAA credit rating. Australia’s central bank said for the first time that the nation’s economy is likely to slide into a recession this year. “Europe will be a continued focus with worries about their fiscal, economic and banking problems and there appears to be a clear end-game for the U.S. auto sector with a much greater chance of them moving into chapter 11 bankruptcy,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “People are taking risk off the table.” Australia’s currency traded at 68.18 U.S. cents as of 11:47 a.m. in Sydney from 68.14 cents late in New York yesterday and 70.26 cents on Dec. 31. This is its third straight quarterly decline. New Zealand’s dollar bought 56.42 cents from 56.34 cents in New York yesterday and 57.92 cents on Dec. 31, falling for a fourth quarter. Australia’s dollar will likely trade between 67.30 and 68.50 cents while New Zealand’s currency will trade between 55.90 and 56.70 cents today, Morriss said. The South Pacific nations’ currencies will register their first quarterly advances against the yen in three, both rising 5.1 percent. Australia’s dollar gained 1 percent to 66.90 yen from 66.27 yen in New York yesterday. New Zealand’s currency bought 55.20 yen from 54.80. Australian Recession “There are limits on how much we can insulate ourselves from what is happening abroad, and therefore there are probably still some difficult times ahead,” central bank Deputy Governor Ric Battellino told a conference in Brisbane today. Gross domestic product is “likely to fall in 2009,” he said. In February, the bank tipped 0.5 percent growth. Australian bank lending growth unexpectedly stalled in February with total loans provided by banks and other finance companies remaining unchanged from January, the RBA said in Sydney today. The median forecast of 18 economists surveyed by Bloomberg News was for a 0.5 percent gain. Economists expect the RBA to lower its benchmark borrowing rate to 2.75 percent from 3.25 percent on April 7, according to a Bloomberg News survey. Higher Interest Rates 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. Australian government bonds rose for a second day. The yield on 10-year notes fell one basis points, or 0.01 percentage point, to 4.45 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 added 0.11, or A$1.10 per A$1,000 face amount, to 106.40. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.94 percent from 4.04 yesterday.

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