By Candice Zachariahs Oct. 28 (Bloomberg) -- The Australian and New Zealand dollars fell as Asian stocks dropped for a second day, damping demand for higher-yielding assets. Australia’s dollar slid to a two-week low as inflation cooled to the slowest pace in 10 years, prompting speculation the central bank may temper the pace of interest rate increases when it meets Nov. 3. New Zealand’s currency dropped for a fifth day before its central bank meeting tomorrow where policy makers may hold rates at a record low. “We saw a modest drop in the pricing of expectations of a 50 basis point hike next week in Australia, which weighed a bit on the Aussie,” said David Forrester, a currency economist in Singapore at Barclays Capital. “Since then it’s been taken over by what’s going on with the U.S. dollar and equity markets.” Australia’s currency fell 0.8 percent to 90.93 U.S. cents as of 4:06 p.m. in Sydney from 91.66 cents in New York yesterday. It touched 90.73 cents, the least since Oct. 14. The currency fell 1.5 percent to 82.92 yen. New Zealand’s dollar declined 0.8 percent to 73.82 U.S. cents from 74.42 cents in New York yesterday. It earlier dropped to 73.68 cents, the weakest since Oct. 19. The so-called kiwi slid 1.4 percent to 67.32 yen. Asian stocks fell, including a 1.1 percent drop for the Shanghai Composite index. Inflation, Futures Annual consumer price inflation in Australia slowed to 1.3 percent in the third quarter, the smallest gain since the second quarter of 1999, from 1.5 percent in the previous there months. Economists in a Bloomberg survey forecast 1.2 percent. Futures markets pared to 10 percent from 14 percent yesterday the chance of a 50 basis point increase in official interest rates when the reserve bank meets next week. “We are in a short-term corrective phase,” said Robert Rennie, currency research head in Sydney at Westpac Banking Corp. The currency may slip toward 89 cents over the next few days, which would present a buying opportunity, he said. Benchmark interest rates are 3.25 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 the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. An Australian index measuring the number of jobs available for skilled workers rose 1.9 percent in October from September, a government report showed today. N.Z. Rates Decision Declines in the New Zealand dollar were limited on speculation Governor Alan Bollard may signal tomorrow that he is unlikely to wait until late next year to raise interest rates. Bollard on Sept. 10 said he expected to keep the cash rate at or below 2.5 percent until the “latter part” of 2010. “They certainly need to have softened their rhetoric from back in September,” said Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington. “They can’t hold off for as long as the end of next year.” Australian government bonds advanced. The yield on 10-year notes fell three basis points, or 0.03 percentage point, to 5.66 percent, according to Bloomberg data. The price of the 5.25 percent security due March 2019 gained 0.217 to 97.075. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.70 percent from 4.73 yesterday.

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