The New Zealand dollar fell and the Australian dollar headed for its first weekly loss since February as waning optimism about the global economy reduced demand for the two nations’ higher-yielding assets. New Zealand’s dollar weakened against all 16 of the most- traded currencies after a government report showed retail sales dropped in the first quarter almost twice as fast as economists estimated. Both currencies declined this week after a U.S. government report showed retail sales unexpectedly slumped and China’s exports fell in April by more than economists had estimated, undermining speculation the worst of the international recession has passed. “The New Zealand dollar is grinding lower after the retail sales shock,” Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney, said. “It all comes down to investor sentiment and whether equities remain strong.” New Zealand’s dollar fell 0.5 percent to 59.38 U.S. cents as of 5:52 p.m. in Wellington, extending its decline to 1.7 percent this week. The kiwi, another name for the currency, dropped to 56.96 yen from 57.16 yen yesterday. Australia’s currency traded at 76.01 U.S. cents from 76.02 cents yesterday in New York. It has lost 1.1 percent this week after touching 77.14 cents on May 11, the strongest since October. The so-called Aussie was at 72.92 yen from 72.82 yesterday, having dropped 3.7 percent in the week. Demand for New Zealand’s currency declined after the International Monetary Fund said the nation’s central bank should cut interest rates further amid easing inflation and a prolonged recession. IMF Comment “The significant easing of monetary policy since July has been appropriate,” the Washington-based IMF said in a report posted on its Web site. “In light of the weak outlook for growth and inflation, further easing may be warranted, but should proceed cautiously.” New Zealand’s official cash rate is 2.5 percent. Australia’s benchmark lending rate is 3 percent compared to near zero in the U.S. and Japan. New Zealand’s retail sales declined for a record sixth quarter, dropping 2.9 percent, adjusted for inflation, from the previous three months, Statistics New Zealand said in Wellington today. The median estimate of economists surveyed by Bloomberg was for a 1.5 percent decline. ‘Vulnerable’ Currencies The Australian currency retreated from a seven-month high after Treasurer Wayne Swan released his budget this week, forecasting record deficits until 2016 as the nation embarks on the biggest building program in its history to blunt the fallout from the global recession. “The Aussie and kiwi, which had a lot of speculative inflows driving the strength in recent weeks, are the most vulnerable to a correction,” Ray Attrill, global research director at Forecast Ltd. in Sydney, said in an interview with Bloomberg Television today. He expects the Australian dollar to decline to 66 cents against the U.S. currency in three months. Australia’s dollar is likely to slide to 63 U.S. cents by year-end and New Zealand’s may drop to 52 U.S. cents as a protracted global recession undermines investors’ appetite for risk and spurs interest-rate cuts by the South Pacific nations’ central banks, wrote Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney. ‘Over-Tired Driver’ The New Zealand currency “has the look of an over-tired driver under the influence trying to make it home,” Gibbs wrote. “It might get there, but there is a high risk it hits a tree and you don’t want to be on board.” New Zealand is likely to experience a seventh quarter of recession in the three months to September before growth returns at the end of 2010, Treasury Secretary John Whitehead said in a speech posted on the Treasury Web site. Australian government bonds rose for a third day. The yield on 10-year notes fell one basis point to 4.86 percent, according to data compiled by Bloomberg. The government sold A$700 million of seven-year bonds today. The bid-to-cover ratio fell to 2.6 times, the lowest among the last four sales of the seven-year securities. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.41 percent from 3.44 percent yesterday.

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