Dec. 20 (Bloomberg) -- Australia’s dollar traded near a one-week low against the yen on lingering concern Europe’s debt crisis will worsen and tensions on the Korean peninsula will intensify, sapping demand for higher-yielding assets. The so-called Aussie fell for the first time in nine days against its New Zealand counterpart before the bigger nation’s central bank releases tomorrow minutes of the December meeting when policy makers said interest rates were “appropriate,” spurring traders to cut bets on further increases. “People can’t buy commodity-related currencies aggressively in this environment,” said Shinichi Hayashi, a dealer at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “Market sentiment is affected by the Europe’s debt woes and news from the Korean peninsula.” The Australian dollar was at 82.79 yen as of 4:28 p.m. in Sydney from 82.98 yen in New York yesterday, after earlier touching 82.74, the least since Dec. 13. It slid 0.4 percent to NZ$1.3375 and bought 98.67 U.S. cents from 98.82 cents. New Zealand’s dollar traded at 61.93 yen from 61.83 yen. The MSCI Asia Pacific Index of regional shares sank 0.6 percent. The European Central Bank said it has “serious concerns” that legislation introduced by the Irish government to fix its banking system threatens the ECB’s ability to run its liquidity operations, according to a position paper dated Dec. 17. Moody’s Investors Service on Dec. 17 cut Ireland’s credit rating by five levels to Baa1 and on Dec. 16 placed Greece’s Ba1 local and foreign currency government bond ratings on review for possible downgrade. Korea Artillery Drill South Korea said it will proceed with a live-firing drill that has prompted North Korean threats of retaliation as the United Nations Security Council failed to agree on steps to ease tension on the peninsula. Artillery positions on Yeonpyeong Island, which was shelled by the North last month, will begin a two-hour exercise this afternoon once fog clears, said a defense ministry official who declined to be named, citing government policy. 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. Demand for the Aussie was limited on speculation the minutes from the Reserve Bank of Australia’s previous policy meeting will signal the central bank won’t increase rates. Rate Expectation Governor Glenn Stevens and his board left the key rate at 4.75 percent on Dec. 7. Stevens said inflation likely will be contained through the middle of next year. “The RBA is likely to indicate its cash rate will be on hold for a while,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney, wrote in a note to clients today. Swap traders are betting the RBA will keep its official cash rate unchanged at its next meeting on Feb. 1, before raising by 41 basis points over the next year, down from 45 basis points of increase a week ago, according to an index compiled by Credit Suisse Group AG. --Editors: Jonathan Annells, Nate Hosoda To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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