The Australian and New Zealand dollars declined after North Korean state media reported that the nation held a nuclear test earlier today, damping investor appetite for riskier currencies. New Zealand’s dollar ended a five-day rally on concern export revenue will drop after the U.S. decided last week to increase subsidies for dairy products, which account for about a fifth of the South Pacific nation’s export earnings. Australia’s currency slipped below 78 cents after trading at the highest since October in New York last week. “It’s one of those geo-political unknowns and should help bolster the U.S. dollar in the short term,” said Amy Auster, head of foreign-exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. “It should put a bit of pressure on the risk currencies.” Australia’s currency slipped 0.5 percent to 77.85 U.S. cents as of 1:10 p.m. in Sydney from 78.27 cents in New York last week, when it reached 78.67 cents. The currency declined 0.9 percent to 73.49 yen. New Zealand’s dollar fell as low as 61.33 U.S. cents and traded down 0.7 percent at 61.57 cents from 62.01 cents in New York on May 22. It declined 1 percent to 58.17 yen. Australia’s currency may drop toward 77.50 cents and New Zealand’s to 61 U.S. cents today, Auster said. Dairy Products North Korea said it conducted a successful nuclear test today, carrying out a threat made last month after the United Nations condemned the communist country’s ballistic missile launch. It was the second time Kim Jong Il’s regime detonated a nuclear device. The first was in 2006. The so-called kiwi dropped as much as 1.1 percent after the U.S. said late on May 22 it would raise subsidies for milk, butter and cheese, allowing exporters to sell products abroad for less than the cost of buying them. The increase in U.S. subsidies may “drive prices down and that would be a negative for producers like New Zealand who don’t have subsidies in place,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., Australia’s biggest lender by market value. “The kiwi might test support close to 61 cents this week,” he said. Prices for dairy products have fallen from record highs 18 months ago as the global recession crimped demand for commodities and the U.S. and Europe increased dairy exports. Futures, Bonds The U.S. decision “is a short-sighted response,” New Zealand Trade Minister Tim Groser said in an e-mailed statement on May 23. It “may even prove counterproductive by creating uncertainty and depressing international dairy market prices.” New Zealand’s currency may decline further before the nation releases its annual budget on May 28. Standard & Poor’s in January put a negative outlook on New Zealand’s AA+ foreign currency credit-rating and said it wanted to see evidence of an improving fiscal position. “I personally don’t think we’ll be downgraded when the rating agencies look at the budget,” Prime Minister John Key told Television New Zealand today. “That doesn’t mean we absolutely can guarantee we avoid it.” Futures traders increased bets that the Australian dollar will gain against the U.S. dollar, 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 29,295 on May 19, compared with net longs of 28,231 a week earlier. Australian government bonds declined for a fifth day. The yield on 10-year notes added five basis points, or 0.05 percentage point, to 5.26 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.37, or A$3.70 per A$1,000 face amount, to 99.95.

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