Australian, New Zealand Dollars Fall on Concern Egypt Tension Will Spread

The Australian and New Zealand dollars fell as Asian stocks declined on concern the unrest in Egypt will spread, damping demand for higher-yielding assets.

The Australian currency dropped to the lowest in more than eight weeks against the yen as investors sought safer assets after Egyptian protesters defied a curfew and gathered to demand the resignation of President Hosni Mubarak. Crude oil climbed for a second day. New Zealand’s dollar fell by the most in a week versus the greenback after a government report showed home- building approvals dropped in December.

“We’ve seen risk aversion and oil prices jump and that’s creating nerves about the global-growth outlook and how far the Middle East tensions might spread,” said Besa Deda, chief economist at St. George Bank in Sydney. “The Aussie may come under some downward pressure.”

Australia’s currency depreciated to 99.21 U.S. cents as of 4:09 p.m. in Sydney from 99.40 cents in New York last week. The currency declined 0.3 percent to 81.40 yen after falling to as low as 80.98, the weakest since Dec. 2. New Zealand’s dollar weakened 0.2 percent to 77.18 U.S. cents and slipped 0.3 percent to 63.33 yen.

The MSCI Asia Pacific index of regional shares fell 0.9 percent after a 1.8 percent drop by the Standard & Poor’s 500 Index on Jan. 28.

The so-called kiwi fell after Statistics New Zealand said home-building permits declined 19 percent in December to the lowest level since January 2009.

The nation’s trade deficit widened in December after the delivery of a commercial jet offset an increase in exports to a seven-month high. The shortfall was NZ$250 million ($192 million) from NZ$186 million in November.

Rates Outlook

Australia’s currency maintained declines after its central bank said loans provided by the nation’s banks and finance companies rose 0.2 percent in December from the previous month, compared with the median estimate for a 0.3 percent gain.

A monthly gauge of Australia’s inflation accelerated in January as floods in the nation’s northeast drove up the cost of fruit, vegetables and utilities, according to an index compiled by TD Securities Ltd. and the Melbourne Institute released today.

Consumer prices increased 0.4 percent after advancing 0.2 percent in December. They rose 3.4 percent in January from a year earlier, the fifth consecutive month above the top of the Reserve Bank of Australia’s inflation target band.

“The RBA board tomorrow is expected to discuss and evaluate the outlook for inflation in the wake of widespread flood damage,” Annette Beacher, head of Asia-Pacific Research at TD Securities in Singapore, wrote in a note to clients. “We remain of the view that the RBA are on the sidelines for several months, but expect the resumption of tightening from May.”

Leave Rates Unchanged

Australia’s currency traded near a two-month low against New Zealand’s before RBA Governor Glenn Stevens and his board are forecast to leave the benchmark rate at 4.75 percent tomorrow, according to economists surveyed by Bloomberg News.

“Inflation pressures are likely to start building later in the year, but for now things look reasonably comfortable for the RBA,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. The Aussie will likely fall toward NZ$1.20 this year as “the Reserve Bank of New Zealand has more work to do than the RBA,” he said.

The Aussie traded at NZ$1.2859 after falling as low as NZ$1.2781 on Jan. 28, the least since Nov. 23.

Net Longs Decline

Futures traders decreased bets the Aussie dollar will gain against the U.S. currency, figures from the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 45,458 on Jan. 25, compared with net longs of 53,508 a week earlier.

Benchmark interest rates are 4.75 percent in Australia and 3 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.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.84 percent from 3.86 last week.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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