The Australian and New Zealand dollars fell, snapping a two-day gain, as Chinese stocks slid on prospects the central bank will introduce new measures to curb inflation and slow the Asian economy. Australia’s currency weakened against all 16 most-active counterparts as analysts at nine banks surveyed this week by Bloomberg News predicted the People’s Bank of China will add to last month’s rate increase by the end of December. Both South Pacific currencies rose earlier on optimism Ireland will accept a bailout, preventing contagion across European debt markets. “There’s still potentially some tightening to come from China,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency and interest-rate risk management firm. “The market is a little nervous about that and the prospects for China. The Aussie is reacting to what’s happening in the Shanghai index.” Australia’s dollar fell to 98.55 U.S. cents as of 4:39 p.m. in Sydney from 98.99 cents yesterday in New York. The currency is little changed this week. The so-called Aussie declined 0.7 percent to 82.13 yen. New Zealand’s dollar dropped 0.3 percent to 77.60 U.S. cents, and weakened 0.5 percent to 64.63 yen. China is Australia’s largest trading partner and New Zealand’s second-biggest export market. The Shanghai Composite Index slumped 1.5 percent today and the MSCI Asia Pacific index erased a gain of as much as 0.6 percent. Risk Appetite Australia’s dollar risks a decline toward 93 U.S. cents while New Zealand’s currency may fall toward 74 cents as risk appetite cools into year-end, said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “While we did see a bit of a relief rally in risk sentiment on the back of speculation about an Irish aid package, they’re not necessarily out of the woods yet,” she said. “The market will start turning its focus to who’s next in line.” Portugal and Spain are among the nations that remain vulnerable, she said. Analysts from Citigroup Inc. and Nomura International Plc have also said any relief would be short-lived as investors are likely to turn their focus to the next-weakest peripheral nation. Markets indicate that country is Portugal with 10-year bond yields at 6.92 percent, compared with 8.31 percent in Ireland and 11.71 percent in Greece. ‘Favorable’ Outlook Declines in New Zealand’s dollar were trimmed as traders increased bets on interest-rate increases by its central bank over the next 12 months. The official cash rate will be raised 83 basis points, according to a Credit Suisse Group AG index based on swaps, up from 78 basis points yesterday. Central bank Governor Alan Bollard said today the nation’s recovery is continuing amid a “favorable” medium-term outlook. Strong growth in East Asia and Australia has been beneficial to the nation and New Zealand may also gain from a medium-term increase in demand for meat and dairy products, he said. Benchmark interest rates are 3 percent in New Zealand and 4.75 percent in Australia, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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