The Australian and New Zealand dollars fell after a Japanese government report showed exports dropped for a sixth month, adding to concern the global recession will deepen the slump in the South Pacific nations. The Australian currency also weakened against the greenback and the yen after a government report showed the annual inflation rate fell to the lowest level in 18 months, giving the central bank more room to lower interest rates. The government will increase economic stimulus spending, widening the budget deficit, to try and pull Australia’s economy out of recession, Treasurer Wayne Swan said. “Japanese trade numbers indicate Australia’s largest export destination is in an extended period of weakness,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. Still, “the Aussie is likely to stay above 70 U.S. cents as long as the flow of strong U.S. earnings reports drives equity gains.” Australia’s dollar fell to 70.70 U.S. cents as of 12:47 p.m. in Sydney, from 71.14 cents yesterday in New York, when it jumped 2.1 percent, the biggest gain since April 2. It dropped to 69.54 yen from 70.24 yen. New Zealand’s currency weakened to 55.80 U.S. cents from 56.40 cents, and declined to 54.80 yen from 55.66 yen. Japan’s exports slumped 45.6 percent in March from a year earlier compared with February’s record 49.4 percent plunge, the Finance Ministry said today in Tokyo. Inflation Slows Australia’s consumer prices increased 2.5 percent last quarter from a year earlier, after gaining 3.7 percent in the prior three months, the Bureau of Statistics said. The median estimate of economists surveyed by Bloomberg News was for a 2.8 percent gain. The Reserve Bank of Australia has lowered its benchmark rate to a 49-year low of 3 percent as demand cools and a global recession pushes down prices for raw materials such as copper and coal. The Australian dollar may find some support from today’s inflation data, ICAP’s Carr said, citing a range of 70.50 to 71.50 in the next few days. Australia’s dollar advanced 0.5 percent against the New Zealand currency as Swan said next month’s budget for the year to June 2010 will add to the almost A$90 billion ($64.6 billion) in grants, spending and bond market assistance already announced to boost an economy that contracted in the fourth quarter. New Zealand entered a recession at the start of last year. Economic Stimulus “One of the aims of this budget is to continue the substantial fiscal or economic stimulus,” Swan said on Sydney radio station 2UE. The global downturn “will further impact on growth and further impact on revenues and that will certainly mean a higher deficit, it will certainly mean higher unemployment.” The Australian and New Zealand currencies surged yesterday as U.S. stocks advanced the most in almost two weeks after Treasury Secretary Timothy Geithner told a congressional oversight panel there were signs of “thawing” in credit markets and some indication confidence was beginning to return. “We had a solid recovery after Geithner’s comments last night,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. The Australian dollar is likely to trade between 70.3 and 71.5 U.S. cents today, she said.

Source