The Australian and New Zealand dollars traded near the lowest in a week as Asian equities slumped after U.S. retail sales unexpectedly dropped in April, reducing investors’ appetite for higher-yielding assets. The currencies weakened yesterday by the most this month after the Bank of England said the U.K. economy faces a slow recovery and companies from ING Groep NV to Applied Materials Inc. posted losses. New Zealand’s manufacturing industry contracted for a 12th month in April amid the nation’s worst recession in more than three decades. “The tone should remain heavy after many longs were caught out by last night’s broad move against risk,” said Tony Bieber, a foreign exchange trader at Suncorp-Metway Ltd. in Brisbane, referring to bets for currencies to rise. “Expect equity markets to lead the way forward.” Australia’s currency slipped 0.1 percent to 75.27 U.S. cents as of 12:59 p.m. in Sydney and fell as low as 75.16 cents, near the weakest since May 8. The currency bought 71.81 yen after dropping 2.7 percent yesterday, the most since April 20. New Zealand’s dollar bought 59.31 U.S. cents from 59.20 cents in New York yesterday and slipped as low as 59.02 cents, near its weakest since May 7. It was 0.3 percent higher at 56.55 yen from 56.42, after falling yesterday by 3.5 percent. The Australian dollar will likely trade between 75 and 75.60 U.S. cents today, Bieber said. The performance of New Zealand’s manufacturing index was 43.7 compared with 41.9 in March, Bank of New Zealand Ltd. and Business New Zealand said in Wellington today. A reading below 50 shows manufacturing is contracting. The MSCI Asia Pacific index dropped 2.3 percent, the most in more than two weeks after the Standard and Poor’s 500 Index slumped for a third day, losing 2.7 percent. Risk Aversion “U.S. retail sales for April rekindled interest in risk aversion plays and safety,” wrote David Watt, senior currency strategist in Toronto at RBC Capital Markets in a note to clients today. “Unless we get some very optimistic news soon the retracement could gain traction.” A test of the Australian dollar’s 200-day moving average of 70.09 yen may be “on the horizon,” Watt wrote. Investors should sell the Australian and New Zealand dollars versus the Japanese yen after a recent “downshifting” in the improvement in economic data, Citigroup Inc. advised in a research note yesterday. “Tactically, there is significant scope for a pullback even if the recent rally in Australian and New Zealand dollars is not fully unwound,” wrote Todd Elmer, a currency strategist at Citigroup in New York. The so-called kiwi fell below its 200-day moving average against the yen in New York as the country’s central bank said yesterday the currency will revert to a “downward trend.” Rates, Bonds Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S. attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Australian government bonds rose for a second day with the yield on 10-year notes falling five basis points, or 0.05 percentage point, to 4.87 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.40, or A$4 per A$1,000 face amount, to 102.91. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, touched 3.46 percent from 3.42 percent yesterday.

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