New Zealand’s dollar fell to a 6 1/2-year low and Australia’s currency extended three weeks of declines after U.S. and Asian shares slumped, prompting investors to seek the safety of the greenback. The Australian dollar added to losses after Treasurer Wayne Swan said the economy will feel the effects of a “dramatic” global slowdown that pushed at least seven of the nation’s 10 biggest trading partners into recession. Manufacturing shrank at a record pace last month and company earnings fell in the fourth quarter, Australian reports showed today. New Zealand Prime Minister John Key said the recession will run for some time. “Both the Aussie and kiwi have come under a significant degree of pressure in a firm dollar environment,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment-banking unit of French bank Credit Agricole SA. “We’re going to continue to see a soft tone but the downside should be limited from here,” he said, referring to the currencies by their nicknames. New Zealand’s dollar dropped as low as 49.12 U.S. cents, the weakest level since November 2002, before trading at 49.28 cents as of 4:10 p.m. in Wellington from 50.08 cents in New York last week. It fell to 48.06 yen from 48.90. Australia’s currency declined to 63.26 U.S. cents from 63.88 cents late last week after touching 62.98, the weakest since Feb. 3. The currency slipped 1.1 percent to 61.67 yen. Demand for Australia’s dollar may resurface at 62.75 U.S. cents and for New Zealand’s currency at 49.20 U.S. cents this week, Kotecha said. Longer to Run The currencies fell as Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index each headed for their lowest closes in five years. The Australian dollar declined 8.4 percent against the greenback this year while New Zealand’s dollar dropped 15 percent as a weakening outlook for global growth put pressure on commodity prices and prompted the central banks of both countries to lower interest rates. “We think the recession will run for a period of time,” New Zealand Prime Minister Key told Sky News in Sydney today. “Probably the thing that is most likely to stimulate the consumer will actually be the reduction in interest rates.” The Reserve Bank of New Zealand will trim its benchmark rate to 2.75 percent on March 12, according to a Bloomberg News survey of 11 economists. New Zealand’s dollar will “underperform” Australia’s currency and may fall toward NZ$1.2960 from NZ$1.2840 per Australian dollar, said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. Manufacturing, Profits Australia’s currency fell after the Australian Industry Group and PricewaterhouseCoopers said in a report today that the performance of manufacturing index declined 4.9 points to 31.7, the lowest since the series began in 1992. A reading below 50 signals manufacturing is contracting. Company profits fell in the fourth quarter for the first time in almost a year with gross operating profits falling 6.5 percent, the Bureau of Statistics said in Sydney today. Losses in the Australian dollar may be limited before a central bank meeting tomorrow where Governor Glenn Stevens is expected to slow the pace of interest-rate cuts. The Reserve Bank of Australia will lower its benchmark rate by 25 basis points to 3 percent, according to a Bloomberg News survey of economists, after cutting it by a percentage point at each of its previous two meetings. Traders pared bets on the odds of a 50 basis-point reduction to 12 percent, from an 81 percent chance at the start of last week, according to a Credit Suisse Group AG index based on swaps trading. Local Events “We expect local events to give the Australian dollar a boost this week,” wrote a team of strategists at Barclays Capital led by Singapore-based David Forrester in a note to investors today. “But rising risk aversion on the back of weaker international data and a continuing pessimistic news flow suggest the currency will struggle against the U.S. dollar and yen.” The Aussie is likely to gain against the kiwi and euro, the analysts wrote. Futures traders reduced bets the Australian dollar will drop against the U.S. currency, 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 a decline in the Australian dollar compared with those on a gain -- so-called net shorts -- was 5,583 on Feb. 24, compared with net shorts of 7,290 a week earlier. Australian government bonds rose. The yield on 10-year notes fell 10 basis points, or 0.1 percentage point, to 4.30 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.84, or A$8.40 per A$1,000 face amount, to 107.65. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.24 percent from 3.23 late last week.

Source