Aug. 17 (Bloomberg) -- The Australian dollar depreciated the most in almost six weeks as equities tumbled, damping investor appetite for higher-yielding assets. New Zealand’s currency also weakened.

Australia’s dollar touched its lowest level in more than two weeks against the yen as the Shanghai Composite Index fell 5.8 percent, its biggest drop in nine months. The Standard & Poor’s 500 Index declined 2.2 percent after its first weekly retreat in a month, and the Reuters/Jefferies CRB Index of 19 raw materials fell 1.4 percent.

The Australian and New Zealand dollars “are doing exactly what they should be doing given the move you’re seeing in equities,” said Adam Boyton, a strategist in New York at Deutsche Bank AG, the world’s largest currency trader.

Australia’s currency fell 1 percent to 82.44 U.S. cents at 2:24 p.m. in New York, from 83.29 cents on Aug. 14. It weakened as much as 2.1 percent, the most since July 8 on an intraday basis, to touch 81.56 U.S. cents. The currency declined as much as 2.5 percent to 77.05 yen, the weakest level since July 29.

New Zealand’s dollar slid 1.2 percent to 67.00 U.S. cents from 67.83 cents. It weakened 1.8 percent to buy 63.21 yen, from 64.38 yen.

The Standard & Poor’s 500 Index fell 0.6 percent in the five days ended Aug. 14, its first week of declines since July 10. The Australian and New Zealand dollars have tracked the gauge more than 80 percent of the time in 2009.

“A lot hinges on U.S. equity market moves,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland.

‘Bias to Decline’

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 Australia’s and New Zealand’s higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

The “impulsive bias to decline suggests additional near- term weakness is likely to develop,” with the Australian dollar finding “key support” at 81.80 and then 80.80 cents, Niall O’Connor, a technical currency analyst in New York at JPMorgan Securities Inc., wrote in a research note dated today. Support is an area on a chart where buy orders may be clustered.

Demand for New Zealand’s currency was briefly bolstered as the nation’s services industry grew for the first time since March 2008, adding to signs the economy may emerge from recession this year. The Bank of New Zealand Ltd. and Business New Zealand reported that the performance of services index was 50.1 in July from 45.0 the previous month. A reading above 50 indicates services industries including retail, property and health are expanding.

Futures Bets

New Zealand’s dollar climbed today as high as NZ$1.2246 per Aussie, the highest since April 9 versus Australia’s currency. It may target NZ$1.2155, ANZ National’s Sinton said.

Futures traders increased bets the Australian dollar will gain 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 an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 48,846 on Aug. 11, compared with net longs of 46,410 a week earlier.

Australian government bonds rose for a second day. The yield on 10-year notes fell 16 basis points, or 0.16 percentage point, to 5.47 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 1.137, or A$11.37 per A$1,000 face amount, to 98.41.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.0875 percent from 4.17 percent on Aug. 14.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Sapna Maheshwari in New York smaheshwar11@bloomberg.net

Last Updated: August 17, 2009 14:31 EDT