The Australian and New Zealand dollars weakened for a second day versus the greenback as a slide in Asian stocks and debt concerns in the Europe and U.S. damped demand for higher-yielding assets. Australia’s currency fell for a fourth day against the yen after Standard & Poor’s cut the U.S. long-term credit outlook to “negative” yesterday citing a growing debt burden. The two South Pacific currencies also dropped against most of their major counterparts after Greece’s bond yields surged yesterday. “Everywhere including the U.S. and Europe aren’t looking good fiscally,” said Osao Iizuka, head of foreign-exchange trading in Tokyo at Sumitomo Trust & Banking co., a unit of Japan’s third-largest banking group. “Risk aversion may cause selling of high-yielding currencies.” Australia’s dollar declined to $1.0457 as of 4:02 p.m. in Sydney from $1.0509 in New York yesterday, when it lost 0.6 percent. The Aussie depreciated 0.7 percent to 86.22 yen. New Zealand’s dollar fell 0.9 percent to 78.40 U.S. cents, and slid 1.1 percent to 64.65 yen. The MSCI Asia Pacific Index of shares dropped for a third day, losing 1.21 percent. S&P put the U.S. government on notice that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. ‘Meaningfully Weaker’ “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” S&P said in a report that maintained its top rating on U.S. long-term debt while lowering the outlook to “negative” for the first time. The Australian and New Zealand dollars were the worst performers versus the yen today on concern Greece won’t be able to avoid defaulting on its debt. Greece’s two-year yield surged to 20 percent yesterday, the highest borrowing cost among developed nations. Otto Fricke, the parliamentary budget spokesman for German Chancellor Angela Merkel’s Free Democratic Party coalition partner, said yesterday Greece may not be able to avoid restructuring its debt before the end of summer. “The European debt crisis is the number one factor, and that’s creating an increased degree of risk aversion,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “That’s really the main factor contributing to the weaker Aussie at the moment.” Benchmark interest rates are 4.75 percent in Australia and 2.5 percent in New Zealand, 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. Australian bonds rose with the benchmark 10-year yield dropping 10 basis points to 5.50 percent, according to data compiled by Bloomberg. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell two basis points to 3.34 percent. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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