By Yoshiaki Nohara June 7 (Bloomberg) -- The Australian and New Zealand currencies dropped for a second day as signs global policy makers may clash over strategies for recovery damped demand for growth-sensitive currencies. The two currencies weakened against most of their major counterparts as Europe called for smaller budget deficits at a Group of 20 meeting over the weekend in South Korea. The U.S. warned against pushing exports instead of domestic demand at the same gathering. The so-called Aussie and kiwi also fell on prospects Hungary will slash spending, adding to concern Europe’s debt crisis will slow economic growth. “Europe’s sovereign debt issues are certainly not getting any better,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “People are potentially worried that this may lead to a double dip in the global economic recovery. If that’s a risk, the Aussie and kiwi will definitely falter.” Australia’s currency dropped to 81.55 U.S. cents as of 4:07 p.m. in Sydney from 82.34 cents on June 4 in New York. It touched 80.97 cents, the lowest since May 25. The Aussie fell 1.6 percent to 74.44 yen. The kiwi declined to 66.51 U.S. cents from 67.07 cents and slid 1.5 percent to 60.73 yen. It touched 66.10 U.S. cents, the weakest since May 26. Treasury Secretary Timothy F. Geithner said the world can’t rely again on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand, speaking at the G-20 meeting. European Central Bank President Jean-Claude Trichet said fiscal tightening in “old industrialized economies” would spur the expansion by boosting investor confidence. Investor Concern Hungary’s government reversed course over the weekend, saying there was no danger of default after it spent two days telling the world the nation risked a Greece-like crisis. Analysts from the European Union and Moody’s Investors Service say the current message is correct. That may not be enough to ease investor concern until Prime Minister Viktor Orban takes steps to achieve the budget-deficit target set by the European Union and International Monetary Fund. “We have to acknowledge that the potential for Europe’s debt problems to escalate into a global financial crisis is very real indeed,” wrote John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note today. “There’s no doubt that the outlook for the Australian dollar has become a lot more uncertain.” High Volatility The so-called Aussie held its declines after a report from Australia & New Zealand Banking Group Ltd. showed that Australia’s jobs advertised in newspapers and on the Internet advanced 4.3 percent in May. “Local economic data isn’t going to have much impact on currencies, and it’s really going to be driven by what happens offshore,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “Volatility in currency markets, bond markets and equity markets is very high. That usually brings the Aussie and kiwi down.” The Chicago Board Options Exchange SPX Volatility Index, the VIX, rose 20 percent to 35.48 on June 4. The benchmark for U.S. stock options is known as Wall Street’s fear gauge because it typically increases as stocks fall. Australia’s S&P/ASX 200 Index dropped 2.8 percent and the MSCI Asia Pacific Index of regional shares fell 3.2 percent. The Reserve Bank of New Zealand will raise the key interest rate to 2.75 percent from a record low of 2.50 percent on June 10, according to the median estimate of economists in a Bloomberg News survey. New Zealand’s markets are closed today for a public holiday. Australian government bonds gained for a second day. The yield on the 4.5 percent note maturing in April 2020 dropped 13 basis points to 5.29 percent, according to Bloomberg data. A basis point is 0.01 percentage point. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.34 percent from 4.35 percent. To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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