By Candice Zachariahs Dec. 23 (Bloomberg) -- The New Zealand dollar dropped to the weakest in more than three months against its U.S. counterpart after a government report showed the nation’s economy expanded at half the pace economists forecast. Australia’s currency traded near its lowest level in 11 weeks after a report showing better-than-forecast sales of existing U.S. homes in November boosted demand for the greenback. New Zealand’s gross domestic product grew 0.2 percent in the third quarter, compared with the 0.4 percent forecast by economists in a Bloomberg survey, as construction, business investment and manufacturing dropped. “The lower-than-expected GDP number has weakened the currency,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. The New Zealand dollar “will weaken with the U.S. dollar ticking up toward the end of the year. We’re looking at 69.03 cents on the kiwi,” he said. New Zealand’s dollar traded at 69.87 U.S. cents as of 4:11 p.m. in Sydney from 70.20 cents before the GDP report and 69.96 cents in New York yesterday. It earlier fell to 69.75 cents, the least since Sept. 14. The kiwi dollar bought 64.08 yen from 64.23 yen. Australia’s currency fetched 87.56 U.S. cents from 87.59 cents yesterday and earlier touched 87.44 cents, the least since Oct. 5. The currency bought 80.29 yen from 80.40 yen. New Zealand’s economic recovery “remains fragile,” Finance Minister Bill English said in an e-mailed statement today. The third-quarter expansion followed a revised 0.2 percent increase in GDP in the previous three months that had been the first expansion in six quarters. ‘Near-Term Downtrend’ The South Pacific nations’ dollars, along with South Africa’s rand, have been the worst performers versus the greenback among the most-traded currencies tracked by Bloomberg in the last five days. The Australian and New Zealand dollars weakened yesterday as U.S. existing home purchases increased 7.4 percent to a 6.54 million annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News. Benchmark interest rates are 3.75 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’ assets. Demand for the U.S. dollar has increased as investors bet on a 48 percent chance that the Federal Reserve will increase the target rate for overnight lending between banks by June. Bonds Fall “Technically they’re now in near-term downtrends after breaking key levels,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney, referring to the Australian and New Zealand dollars. “At this stage the Aussie is starting to look a bit overdone to the downside.” He expects the currency to climb toward 90 cents in January if equity markets and commodities advance. Australia’s dollar will be supported toward 85 cents while New Zealand’s dollar is likely to find buyers near 69.50 cents, Gibbs said. Currencies may be volatile with thin liquidity in the markets before the Dec. 25 Christmas holiday, he said. Australian government bonds fell for a third day. The yield on 10-year notes added five basis points, or 0.05 percentage point, to 5.54 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.33, or A$3.30 per A$1,000 face amount, to 97.89. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.54 percent. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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