The Australian and New Zealand dollars dropped for the first time in three days on speculation the spread of swine flu from Mexico will hurt tourism and deepen the global recession, spurring investors to sell riskier assets. New Zealand’s dollar weakened versus the yen and the greenback as economists estimate policy makers will lower the benchmark rate on April 30 to 2.5 percent from 3 percent to counter the nation’s worst economic slump in three decades. The Australian and New Zealand currencies also fell after Lawrence Summers said the U.S. economy will shrink “for some time to come” and Japan’s government lowered output forecasts. “Risk-aversion trading has returned on the flu story,” said Greg Gibbs, a currency strategist with RBS Group Australia Ltd. in Sydney. “There’s certainly downside risk to the New Zealand dollar and it may have a bigger fall if this flu story becomes worse.” Australia’s currency slid 1.5 percent, the most in a week, to 71.27 U.S. cents as of 4:10 p.m. in Sydney, from 72.32 cents in New York on April 24. It fell 2 percent to 68.85 yen. New Zealand’s dollar slid 1.6 percent, also the biggest drop in a week, to 56.35 U.S. cents from 57.24 cents last week. It dropped 2.1 percent to 54.45 yen. President Barack Obama’s administration declared a public health emergency because of a growing number of swine flu cases in the U.S. and Mexico. New illnesses were also confirmed in Canada, and suspected in Brazil and Europe and New Zealand. Swine Flu Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever. New Zealand Health Minister Tony Ryall said 10 high school students who returned from Mexico are “highly likely” to have swine flu. The nation’s currency may slide toward 55 U.S. cents this week, Gibbs said. Benchmark interest rates are 3 percent in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S. attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is currency market moves will erase profits. “The focus this week is going to be on the Reserve Bank of New Zealand with most economists picking 50 basis points,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “A comment on keeping rates lower for longer will cause the currency to depreciate.” Interest Rates The RBNZ has slashed rates 5.25 percentage points since July to a record low as the nation struggles to emerge from its worst recession in more that three decades. Australia’s central bank will leave its benchmark rate unchanged when it meets May 5, according to the median estimate of 18 economists surveyed by Bloomberg News. New Zealand’s dollar will trade between 54.60 and 58.30 U.S. cents while Australia’s will buy between 70 and 73.30 U.S. cents over the next two weeks, Allen said. Both currencies fell against the greenback and the yen as optimism waned that recessions may ease in the U.S. and Japan, the world’s two biggest economies. “I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers, director of the White House National Economic Council, said on “Fox News Sunday.” Growth Concerns Japan’s government lowered its economic forecast for the world’s second-biggest economy, saying gross domestic product will shrink a record 3.3 percent this fiscal year. The Bank of Japan may say this week the nation’s economy will contract as much as 4 percent, public broadcaster NHK reported, without saying where it obtained the information. “There may be a little bit of home bias in the yen as a result of that,” said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. Japan is the biggest buyer of Australian goods exports. Australia’s dollar may be in for a “brief correction” and will likely stay below its 200-day moving average of 72.36 U.S. cents, Grace said. Futures traders decreased bets the Australian dollar will gain against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 17,250 on April 21, compared with net longs of 20,789 a week earlier. Australian government bonds advanced for the first time in four days. The yield on 10-year notes fell four basis points, or 0.04 percentage point, to 4.47 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.33, or A$3.30 per A$1,000 face amount, to 106.17. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 3.61 percent from 3.62 on April 24.

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