The currencies weakened as reports showed U.S. home prices plunged at the fastest pace in at least four decades and confidence among Japanese manufacturers declined the most on record. A deepening global recession may lead to interest-rate cuts in Australia and New Zealand, eroding their appeal as a destination for funds borrowed in nations such as Japan that have lower borrowing costs.

“The equity and currency markets have been moving in step,” said Charles Wiggins, corporate risk manager at Custom House Global Foreign Exchange in Sydney. The Australian dollar will trade between 66 and 69 U.S. cents this month, he forecast.

Australia’s currency fell 0.9 percent to 67.76 U.S. cents as of 3:24 p.m. in Sydney from 68.34 cents late in Asia yesterday. The currency lost 0.4 percent to 61.37 yen.

New Zealand’s dollar declined 0.5 percent to 56.80 U.S. cents from 57.07 in Asia yesterday. It bought 51.43 yen from 51.47.

Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., a premium that has helped draw funds to the South Pacific nations.

Liquidity in the foreign-exchange markets will decline due to the Christmas holidays, said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. The Australian dollar will find support at 67.68 cents and New Zealand’s currency at 55.88 cents, he said.

Cheaper Commodities

The Australian currency has dropped 20 percent against the U.S. dollar in 2008 and 37 percent versus the yen as falling commodity prices amid a global recession made the nation’s assets less attractive. New Zealand’s currency fell 23 percent versus the U.S. dollar and 40 percent against the yen.

Australia’s currency may add to this year’s slide in the first quarter of 2009, Sydney-based Jonathan Cavenagh, a currency strategist at Westpac Banking Corp., wrote yesterday in a research note.

“We expect that the maximum level of bearishness for the Australian dollar will be reached around the time of the contract negotiations for bulk commodities, which is scheduled for April,” he said.

Raw materials account for 60 percent of Australia’s exports. The currency will likely trade around the 5 1/2-year low of 60.10 cents it reached on Oct. 28 and find a floor as low as 55 cents, he wrote.

Second-Half Recovery

Cavenagh forecast that the Aussie, as the currency is known, will recover in the second half of 2009 as policy initiatives around the world lead to a pick-up in growth.

“We expect January will bring increased flows to currencies like the Australian dollar” that have higher yields, Robert Sinche, New York-based head of global currency strategy at Bank of America Corp., wrote in a research note dated Dec. 23.

Investors should buy the Australian dollar versus Canada’s currency as it may strengthen 9 percent, Bank of America and Westpac Banking Corp. said in notes yesterday.

Sinche recommended buying Australia’s currency at 82.60 Canadian cents, saying it may strengthen to 90 cents. He advised exiting the trade if it falls to 80.94 Canadian cents. The Australian dollar traded at 82.49 Canadian cents from 83.07 late in Asia yesterday.

Westpac also advised buying the Aussie versus the euro, predicting an 11 percent advance. Investors should buy the Australian dollar on dips toward 0.48 euro with an initial target of 0.54, Cavenagh wrote. They should exit the bet if the Aussie weakens to below 0.47 euro, he wrote. It recently traded at 0.4854 euro from 0.4887 yesterday.

Bonds Gain

Australian government bonds advanced for a second day. The yield on the 10-year note fell 2 basis points, or 0.02 percentage point, to 4.09 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.128, or A$1.28 per A$1,000 face amount, to 109.592.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, slid to 4.49 percent from 4.51 yesterday.

Bloomberg.com: Australia & New Zealand

Jobs advertised in newspapers and on the Internet plunged 8.6 percent last month to an average of 211,199 a week, after falling 5.9 percent in October, according to an Australia & New Zealand Banking Group Ltd. report released in Melbourne today. Newspaper ads fell over the last two months by the most in the 30-year history of the survey, the bank said.

Central bank governor Glenn Stevens cut the benchmark interest rate by one percentage point last week to a six-year low 4.25 percent to help the nation’s economy avoid its first recession in 17 years. Gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years. Employers probably cut 15,000 jobs last month, according to a survey.

“The global financial crisis has had a substantial impact on the Australian economy in the December quarter,” said Warren Hogan, head of economics at ANZ Bank in Sydney. “If the recent weakness in job ads is sustained, it would be consistent with a contraction in total employment over the first six months of 2009. This would result in a much more rapid rise in the unemployment rate than we are currently forecasting.”

Australia’s unemployment rate rose to 4.4 percent in November from 4.3 percent in October, a report will show on Dec. 11, according to the median estimate of 22 economists surveyed by Bloomberg.

The number of jobs advertised in newspapers fell 12 percent to an average of 11,767 per week, 43 percent lower than a year earlier, today’s report showed. Vacancies on the Internet slid 8.4 percent to an average 199,433 per week, 13 percent lower than 12 months ago.

Bloomberg.com: Australia & New Zealand

The currencies extended gains from Dec. 5 after U.S. President-elect Barack Obama on the weekend pledged the biggest public works program in about 50 years to help fuel growth in the world’s biggest economy. Australia’s dollar strengthened the most in two weeks against the U.S. currency and the yen after S&P/ASX 200 Index climbed the most in a week and Japan’s Nikkei 225 rose the this month.

“The equity market’s rebound is encouraging the Aussie up,” said Joe Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia Ltd., the nation’s biggest mortgage lender. “The reality is that the world economy is in very poor shape and that’s typically bad news for the Aussie,” he said, referring to the currency by its nickname.

Australia’s currency gained 1.3 percent to 65.49 U.S. cents as of 5:09 p.m. in Sydney, from 64.67 cents in New York late last week. The currency rose 1.3 percent to 60.82 yen.

New Zealand’s dollar advanced 0.5 percent to 53.60 U.S. cents from 53.32 cents in New York. It bought 49.83 yen.

The currencies advanced as U.S. lawmakers approached agreement on bridge loans for General Motors Corp. and Chrysler LLC to help the automakers survive this month. President-elect Obama said at a press conference in Chicago on Dec. 6 that he will boost investment in roads, bridges and public buildings to create and preserve 2.5 million jobs.

Exporters to Benefit

The New Zealand dollar’s gains were tempered after Prime Minister John Key yesterday said exporters would benefit as the kiwi, as the currency is called, may drop below 50 U.S. cents.

The kiwi “will print a four in front of it at some point against the U.S. dollar, and probably a seven when it comes to the Australian cross rate,” Key said on Television New Zealand’s Agenda Program. The currency fell 0.6 percent to 81.99 Australian cents and touched 81.49, the lowest since Sept. 26.

“The market’s priced in that, over a several-month horizon, the kiwi is going to be weaker,” said Imre Speizer, a market strategist in Wellington with Westpac Banking Corp. “It’s slightly unusual the Prime Minister said it.”

Westpac forecasts that New Zealand’s dollar will bottom at close to 45 U.S. cents in the first quarter and then climb to about 56 cents by the end of 2009. It will fall to a low of 80 Australian cents by the middle of next year, the bank said.

Jobs Report

Gains in the Australian dollar may also be limited this week before a report that economists say will show the number of people employed fell 15,000, according to a Bloomberg News survey. The unemployment rate is forecast to rise to 4.4 percent, the highest since November 2007, from 4.3 percent. The statistics bureau will release the report on Dec. 11.

Australian job-vacancy advertisements fell for a seventh month in November, led by a record drop in newspaper notices, according to an Australia & New Zealand Banking Group Ltd. report released today in Melbourne. Newspaper ads fell over the last two months by the most in the 30-year history of the survey, the bank said.

Futures traders increased their bets that the Australian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian currency compared with those on a gain — so-called net shorts — was 9,878 on Dec. 2, compared with net shorts of 8,624 a week ago.

Australian government bonds declined. The yield on the 10- year note rose 2 basis points, or 0.02 percentage point, to 4.3 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.135, or A$1.35 per A$1,000 face amount, to 107.832.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 4.75 percent from 4.78 on Dec. 5.

Bloomberg.com: Australia & New Zealand