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BLBG: Australian, N.Z. Dollars Fall as Credit-Market Woes Increase
By Candice Zachariahs

Oct. 6 (Bloomberg) -- The Australian dollar dropped below 75 U.S. cents for the first time since October 2006 and New Zealand's currency also declined as a deepening global credit crisis damped demand for higher-yielding assets.

Australia's dollar slumped to its weakest in four years and New Zealand's the lowest in five years against the yen after state-backed bailouts were announced for Belgium's Fortis and Germany's Hypo Real Estate Holding AG. The Australian and New Zealand currencies are favorites with investors seeking higher returns on investments funded in Japan.

``Many investors believe that credit and money markets are going to take some time to recover,'' said Mike Symonds, head of currency trading at Bank of New Zealand Ltd. in Wellington. ``The Aussie and kiwi are very much seen as barometers of global growth, so it's no surprise they're under some duress,'' he said, referring to the currencies by their nicknames.

The Australian dollar fell 3.2 percent to 74.92 U.S. cents as of 4:34 p.m. in Sydney from late last week in New York. It touched 74.44 cents, the weakest level since October 2006. The currency declined 5.1 percent to 77.29 yen, after touching 76.59 yen, the lowest level since September 2004.

New Zealand's dollar weakened 2.1 percent to 64.80 U.S. cents from 66.18 cents in New York last week. It slid 4.1 percent to 66.91 yen. It fell to 66.44 yen, the weakest since October 2003.

European Bailouts

The currencies fell as BNP Paribas SA agreed to take control of Fortis's units in Belgium and Luxembourg after government efforts to ensure the company's stability failed. In Germany, the government and financial institutions agreed on a 50 billion euro ($68.2 billion) rescue package for Hypo Real Estate after an earlier bailout faltered.

The global credit crisis has resulted in writedowns and losses totaling $586 billion by banks and financial institutions worldwide. It has caused the collapse, sale, rescue or nationalization of organizations including Bear Stearns, Merrill Lynch & Co Inc., Fortis and Bradford & Bingley Plc.

Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The risk in such trades is that exchange-rate fluctuations may erase profits.

Australia's currency has fallen 21 percent since reaching a 25-year high of 98.49 U.S. cents on July 16 on concern global and domestic economic growth will slow. The Reserve Bank of Australia is certain to cut interest rates when it meets tomorrow by at least 25 basis points, with a 99 percent probability it will reduce them by twice that amount, according to a Credit Suisse index based on overnight swaps trading.

``The further deterioration in the global credit crisis amid an already faltering global growth backdrop argues for a more aggressive move,'' wrote Adam Cole, head of global currency strategy in London at RBC Capital Markets, in a research note today.

Thin Trading

Declines in the Australian currency today may be exaggerated as trading is lighter than normal because of a holiday in the state of New South Wales, Bank of New Zealand's Symonds said.

New Zealand's currency also weakened as the government said the budget deficit will be almost twice as large as earlier forecast amid the economy's first recession in 10 years. The cash deficit will be NZ$5.9 billion ($3.85 billion) in the year ending June 30, 2009, more than the NZ$3.48 billion shortfall predicted in May, the government said in an economic and fiscal update released today.

Australian government bonds rose. The yield on the benchmark 10-year note fell 17 basis points to 5.118 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 1.336, or A$13.36 per A$1,000 face amount, to 101.053. A basis point is 0.01 percentage point.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, dropped to 6.810 percent today from 6.845 at the end of last week.

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