New Zealand’s dollar slid to the lowest this year against the U.S. currency and yen after a magnitude 6.3 earthquake caused multiple deaths and toppled buildings in Christchurch, the Pacific nation’s second-largest city. The so-called kiwi slid versus all 16 of its major counterparts as buildings around the city were damaged by the temblor, which followed a quake in September that was the worst in 80 years. The New Zealand and Australian dollars also declined as investors sold higher-yielding assets on concern over escalating tensions in the Middle East as Libyan soldiers deserted in protest over a government crackdown. “The risk is that we see the market price out tightening from the Reserve Bank,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp, Australia’s second-largest lender. “The earthquake has caught the market in a risk-averse mood anyway with the yen strengthening and oil prices rising on tensions in the Middle East.” New Zealand’s dollar dropped to 74.93 U.S. cents, the least since Dec. 28, before trading at 75.01 U.S. cents as of 4:52 p.m. in Sydney from 76.38 cents yesterday in New York. It fell 1.6 percent to 62.49 yen, the biggest slide since Nov. 23 and also the weakest since Dec. 28. Australia’s currency declined to $1.0029 from $1.0094 and fell 0.4 percent to 83.56 yen. The cost to lock in fixed interest rates in New Zealand instead of floating payments for two years fell by the most since July on speculation the Reserve Bank will keep its key rate unchanged for longer as the nation’s recovery stumbles. Swap Rates New Zealand’s two-year swap rate, which is sensitive to interest-rate expectations, fell to 3.66 percent from 3.82 yesterday. The five-kilometer-deep quake was centered 10 kilometers (6 miles) south-east of Christchurch on the South Island, according to geonet.org.nz. September’s quake caused an estimated NZ$5 billion ($3.75 billion) of damage, according to the Reserve Bank. The kiwi may slide to 74 cents and NZ$1.3450 per Australian dollar over the next few days, Westpac’s Cavenagh said. It was at NZ$1.3375. Stephen Roberts, a senior economist at Nomura Australia Ltd., predicts damage and disruption from today’s earthquake may lower New Zealand’s first-quarter gross domestic product to “about flat” from the 0.8 percent he forecast previously. The central bank will likely raise its benchmark rate by 25 basis points this year to 3.25 percent, he said, cutting an earlier estimate for three rate increases beginning in April. GDP Boost Delayed “Having the second earthquake so soon after the first one really slows the reconstruction process,” Roberts said. “So it’s more like 2012 before we see the lift in GDP from that.” The central bank may be on hold for all of 2011 and possibly the first quarter of 2012, Citigroup Inc. analyst Akash Reddy wrote in a note to clients. Investors cut their prediction for the amount of interest rate increases from the Reserve Bank of New Zealand over the next 12 months to 28 basis points today from 50 basis points yesterday, according to a Credit Suisse AG index. Australia’s dollar declined for a second day after the MSCI Asia Pacific Index slid 1.9 percent and oil climbed to the highest level in more than two years amid intensifying turmoil in Libya. ‘Rivers of Blood’ Libya, holder of Africa’s largest oil reserves, erupted into violence yesterday after Saif al-Islam Qaddafi, the son of head of state Muammar Qaddafi, threatened “rivers of blood” and deployed security forces on protesters. U.S. Secretary of State Hillary Clinton called for a stop to the “unacceptable bloodshed” after al-Jazeera reported at least 250 people died in Tripoli alone. Qaddafi said today he hadn’t fled the country as diplomats resigned in protest over a crackdown on anti-government protesters. Benchmark interest rates are 3 percent in New Zealand and 4.75 percent in Australia, compared with as low as zero percent 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. 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.

Source