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

The first relates to an agreement signed a decade ago with global food giant Cadbury, which gives TCCC a pre-emptive right to bid for Cadbury’s soft drink business in Australia. This pre-emptive right was triggered on Christmas Eve when Cadbury announced it had received a 550 million ($1.19 billion) takeover offer for the Schweppes business from Japanese brewing giant Asahi Breweries.

TCCC has until March to decide whether to buy Schweppes, or allow global competitor Asahi to consummate the deal and move into the Australian market.

Its decision will no doubt hinge on an even bigger decision it has to make on the future ownership of anchor bottler Coca-Cola Amatil (CCA).

TCCC has a 30 per cent shareholding in CCA, which is facing an $8 billion takeover offer from Lion Nathan.

Lion wants to execute the takeover of CCA via a scheme of arrangement that requires a 75 per cent approval. This makes TCCC’s agreement imperative if the deal is to succeed.

Whatever TCCC decides to do in relation to the future ownership of the two biggest soft drinks operators in Australia will also have an impact on the future ownership of Australia’s alcohol industry.

Put simply, if TCCC buys Schweppes and sells some of the brands into CCA, it would prompt Lion Nathan to withdraw its offer for CCA and increase the likelihood of Asahi bidding for the country’s biggest beer and wine company, Foster’s Group, which is finishing off a strategic review of its wine business.

But if TCCC decides to allow Asahi to buy Schweppes, and also knocks back Lion’s takeover offer for CCA, CCA might bid for Foster’s.

Foster’s underperforming wine business is acting like a poison pill, dissuading potential buyers of the beer business, which might fetch more than $11 billion in its own right. The board of Foster’s promised that by February it would release details of a strategic review, which could include demerging its wine business.

CCA is champing at the bit to get into the alcohol business, and would be very interested in Foster’s if the board opted to sell its wine business, write down the value of the wine business substantially, or even better, demerge the two businesses into separate entities.

CCA needs to get into alcohol because its dominance in the non-alcoholic beverages sector makes it hard to make any more acquisitions without running into regulatory problems from the Australian Competition & Consumer Commission.

It tried to buy the Berri fruit juice company in 2003 but faced ACCC opposition on the basis that the move would allow CCA to leverage its market power, and that would reduce consumer choice and cause harm competition significantly.

But CCA would need the green light from TCCC to bid for Foster’s, something that might not be as easy as it sounds, because any deal would reduce earnings per share.

CCA has started small in alcohol, with the formation of a joint venture with SABMiller called Pacific Beverages, along with an exclusive agreement to sell and distribute the premium spirit portfolio of global premium spirits distributor Maxxium, which boasts brands such as Jim Beam, Canadian Club, Remy Martin, Cointreau, and Absolut Vodka, and more recently started to build a $120 million brewery with a target of 30 million litres of beer.

SABMiller is more likely to look at Foster’s on its own, if it became availableCCA currently has around 12.5 million litres of beer, or 0.7 per cent of the market, including 2.5 million litres of Bluetongue, just under a million litres of Peroni, Miller and Pu Beer and a million litres of Grolsch (acquired by Miller this year).

But CCA’s alcohol strategy has raised speculation that there are bigger plans. The reason is simple: returns to date are minuscule, making it difficult to believe that SABMiller would really divert management time and resources for such a small return.

The upshot is SABMiller is more likely to look at Foster’s on its own if it became available.

Many argue that SABMiller’s alliance with CCA is more about understanding the Australian market and getting Foster’s to the negotiating table, than a possible vehicle for a Foster’s acquisition.

Financial records show that CCA’s share of the Pacific Beverage joint-venture profits were $800,000 in 2007 and about $300,000 for the first half of 2008.

Assuming it achieves its target of 30 million litres of beer, it would need to generate fat margins to make the business worthwhile.

Indeed, back of the envelope figures suggest that even if it made a $1.50 a litre gross margin, when marketing costs, operational costs and interest costs are taken into account, the returns become questionable. As a further aside, North America-based Molson Coors Brewing Company has bought a seat at any takeover table after announcing in November it had built up an economic interest of about 5 per cent of Foster’s, by entering into a cash-settled total return swap with Deutsche Bank.

Some speculate that Asahi is gearing up for a play for Foster’s, while others suggest that if Asahi gets Schweppes it will then bid on some of the assets of the struggling Independent Liquor.
Asahi has made it clear it wants to diversify, moving out of the Japanese beer market.
The next few months will be profound for the Australian soft drinks and alcohol industry, with TCCC playing a key role in its reshaping.

The decisions it makes may be based on deals it does in other countries.

For instance, Lion Nathan’s bid for CCA was made in conjunction with Lion’s major shareholder, Japanese beer company Kirin, which is understood to have had a series of discussions with TCCC regarding the bid, the business plan of the merged entity and ways to satisfy certain conditions that were outlined in a letter from TCCC to Kirin when the proposal was first presented to CCA.

In Japan, Kirin is the third-largest soft drink manufacturer with a 12 per cent market share and is a direct competitor of TCCC, which has 29 per cent of the market. Kirin also owns 10 per cent of TCCC’s leading Japanese bottler, Coca-Cola West Holdings Japan, and 100 per cent of Coca-Cola Bottling Company of Northern New England, which operates in the 6 US states.

Japan is a more important market for TCCC than Australia.

Kirin is TCCC’s closest ally of the major Japanese beverage players and, in return for giving its approval for Lion to acquire Coca-Cola Amatil, under an acceptable structure, TCCC may seek concessions or undertakings from Kirin in Japan.

With everything up for grabs, and the Australian dollar making Australian businesses relatively cheap for foreign players, anything is possible.

It isn’t beyond the realms of possibility that TCCC does a deal with Kirin, ends up with 9 per cent of CCA, keeps making money from CCA by selling it syrup and buys Schweppes in Australia as a bargaining chip with a few other players.

The Australian

The drop in average prices matched October’s decline, which was the biggest since the series began in 2005, Quotable Value New Zealand Ltd., the Wellington-based government valuation agency, said in an e-mailed report today. It was the first time in 15 months that the annual change hasn’t deteriorated.

Falling property prices add to signs the economy’s slump will be prolonged as stricter lending conditions and rising unemployment erode household confidence. Central bank Governor Alan Bollard, who has cut the benchmark interest rate by 3.25 percentage points since July to kick-start demand, urged lenders last week to pass on lower borrowing costs to consumers.

“It’s too soon to be talking about the housing market stabilizing,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. “In November and December the market is going to soften further rather than improve.”

Some home-lending rates have fallen to the lowest in four years which is good news for those refinancing debt, Tuffley said. Still, 85 percent of New Zealand home loans are fixed and don’t immediately benefit from lower lending rates.

“Rates have been falling since May but there is no sign of a pick up in lending,” he said.

Potential home buyers are “taking a wait and see approach. They are hearing a lot of bad news about the economy and they are worried about job security,” he said.

Deposit Requirements

Home lenders including ANZ National Bank Ltd., the nation’s largest, require first-time buyers have a deposit of at least 20 percent of the purchase price a property, according to media reports.

Bollard last week said the economy may be emerging from recession, though faces a “shallow” recovery over the next six months. He couldn’t rule out further contraction in gross domestic product if the global outlook deteriorates.

The central bank forecasts house prices will slump 16 percent in the three years to the end of 2010. It also expects the jobless rate will rise to 6 percent by the end of 2009 from 4.2 percent in the third quarter.

The average sale price for November declined to NZ$375,408 ($200,073), according to today’s report.

Home prices in Auckland fell 7.4 percent and in Wellington by 6 percent, today’s report showed. Prices across the nation’s 17 main urban centers dropped an average 7.2 percent.

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

These include “an appropriate merger ratio,” issues connected with British Airways’ pension fund and the global economic outlook, Chief Executive Officer Alan Joyce said today in Sydney at a business lunch, the 42-year-old’s first public speech since taking the CEO role Nov. 28.

Qantas revealed the merger talks with its London-based rival last week as Joyce seeks to cut costs amid mounting losses for the airline industry. Combining with British Airways would create a company with about $23 billion in annual revenue, carrying more than 71 million passengers on almost 500 planes.

“Qantas comes to these negotiations from a position of strength,” Joyce said today. “We are in these discussions because a merger has the potential to create the global scale that would allow us to grow and enhance our services, and deliver significant revenue and cost synergies.”

Concern about pension fund liabilities has delayed progress on British Airways’ proposed tie-up with Spain’s Iberia Lineas Aereas de Espana SA, analysts at Citigroup Inc. said in a Nov. 21 report.

British Airways, which will complete a tri-annual actuarial review of its pension program in 2009, said Sept. 18 that the annual funding deficit widened to 1.5 billion pounds ($2.2 billion) as of March 31, the end of its last fiscal year.

Qantas shares rose 16 cents, or 7.2 percent, to A$2.38 at the close of trading in Sydney, paring this year’s decline to 56 percent.

No Guarantee

Joyce said there was “no guarantee” a transaction will proceed, adding that British Airways can link with Qantas or Madrid-based Iberia but not both.

“BA are conscious, as Iberia are and we are, that only one of the transactions could take place,” Joyce told reporters after the speech. “When you explore dialogue with any carrier the likelihood is that the carrier has multiple dialogues going on, that’s the way it takes place.”

The Australian carrier will look at opportunities in Asia if the British Airways talks don’t result in a deal, he said.

Merger discussions began under former CEO Geoff Dixon, who retired from the role last month and will remain a consultant to Qantas until the end of March.

Joyce said the Qantas name on airplanes is a “non- negotiable” item in the talks as he prefers to maintain existing brands, similar to what was done at Air France-KLM when the French company bought KLM Royal Dutch Airlines NV in 2004.

Australian Headquarters

Qantas will retain an Australian headquarters and any deal will comply with rules preventing majority foreign ownership.

The carrier has “flexibility” to do more cost cutting and improve productivity, Joyce said. The airline last month said 2009 profit may fall 64 percent to A$500 million as slowing demand for international travel forces it to cut passenger capacity and sideline planes.

Joyce said the airline, which spends A$1.4 billion ($911 million) on maintenance each year, hasn’t lowered safety standards. He made the comment in relation to incidents this year, including a mid-air plunge that injured 40 and an exploding oxygen tank which blew a hole in the fuselage of another flight.

Customer confidence in Qantas’ safety record has fallen after the incidents, with nearly two thirds of Australians saying its standards have worsened in recent years, the Australian newspaper said today, citing a survey by UMR Research.

“A confluence of events have shaken that safety perception,” Joyce said. “The most important thing is that safety is the number one priority.”

The 51-year-old former diplomat Monday marks the first anniversary of his centre-left Labor Party’s landslide win with a personal approval rating of 70 percent, according to a Nielsen poll.

This is higher than any level the bespectacled father-of-three who speaks fluent Mandarin reached during his time as opposition leader, when he also developed a keen eye for policy detail.

Rudd has maintained a breathless pace since removing John Howard from office in the November 24 election which ended more than 11 years of conservative rule Down Under.

Rudd’s first official act was to ratify the Kyoto protocol on climate change and he swiftly followed this with a historic apology to Aborigines for past injustices — in both cases breaking long-standing positions held by Howard.

The fair-haired Queenslander, who has been likened to cartoon character Tintin, has also taken more overseas trips than any other Australian prime minister in their first 12 months.

He will spend Monday travelling home from the Asia-Pacific Economic Cooperation (APEC) summit in Peru, following the previous week’s dash to Washington for G20 talks hosted by US President George W. Bush.

But it is the global financial crisis which has allowed Australia’s 26th prime minister to redefine his leadership from the fiscal conservative of the 2007 campaign to the “big spender of 2008,” said political commentator Paul Kelly.

“The crisis was the turning point, it meant that Kevin Rudd had to recast his economic policy and to remake his political strategy,” Kelly, editor-at-large at The Australian newspaper, told ABC television.

“He seized the crisis. He presented himself as the man for the moment. He got his narrative and the narrative is — he will save Australia from the global recession or at least minimise the impact of the global downturn.”

Monash University academic Nick Economou said Rudd had enjoyed a solid, scandal-free first year and that the meltdown on world financial markets had given him an added platform to demonstrate his leadership.

“He’s clearly relishing what’s going on,” the senior lecturer in politics told AFP. “There’s no doubt that he’s appearing to be handling the crisis really well.”

The credit crunch prompted Rudd to guarantee bank deposits and spend almost half the forecast budget surplus of 21.7 billion dollars (13.6 billion US) on a stimulus package at the height of the panic mid-October.

Dr. Michael McKinley, senior lecturer in international relations at the Australian National University in Canberra, said Rudd had used the crisis to demonstrate his leadership credentials at home.

“The problem is that the global financial crisis is way beyond Australia’s ability to seriously influence,” he told AFP.

“Who is listening to Kevin Rudd? That is the question that needs to be asked.”

McKinley said while some of Rudd’s actions — such as signing the Kyoto Protocol so late — had been merely symbolic, the prime minister had made genuine gestures for which he will be remembered.

“I think the apology to the Aboriginal people has to count, I think the decision to sign Kyoto counts,” he told AFP.

But McKinley said Rudd, who withdrew Australia’s combat force from Iraq earlier this year, had not fundamentally changed the country’s position in the world.

“He is a sensible guy, and he’s intelligent. But has it made a difference to Australia’s standing in the world? No, it hasn’t.”

AFP:

The Indonesian man, who worked for the trader at a market in the South Australian capital, Adelaide, recently complained of his underpayment to the Workplace Ombudsman and was then threatened with dismissal.

The company has escaped court action but has been ordered to pay back the money.

Ombudsman spokesman Craig Bildstein says some employers take advantage of migrant workers.

“People from non-English speaking backgrounds are vulnerable workers, just like young people are vulnerable workers and for us they are a priority. Any worker has workplace rights and it’s our role to enforce them,” he said.

Australian company fined for underpaying Indonesian worker