SINGAPORE (Bloomberg) -- The New Zealand dollar dropped to the weakest since January and the Australian dollar declined to the lowest in three weeks on prospects the Federal Reserve will raise U.S. interest rates.

The currencies of the two South Pacific nations fell a second day after U.S. Treasury Secretary Henry Paulson said June 9 he would “never” rule out currency intervention and Federal Reserve Chairman Ben S. Bernanke said policy makers will “strongly resist” inflation pressure. The kiwi, a nickname for New Zealand’s dollar, slid as home sales plunged to the lowest since 1991. The Aussie, another name for the currency, declined as consumer confidence fell to the weakest in almost 16 years.
“The main thing is the U.S. dollar story,” said Tim Kelleher, manager of institutional services at Commonwealth Bank of Australia in Auckland. “You’ve got the U.S. CPI on Friday night. We assume it’s going to be a stronger number than expected the way Bernanke and Paulson are talking. So this continues to put pressure on the Aussie and the kiwi.”
New Zealand’s currency fell 0.6 percent to 75.03 U.S. cents, the lowest since Jan. 23, before trading at 75.37 cents as of 4:56 p.m. in Wellington, compared with 75.49 cents in late Asian trading. The Australian dollar dropped 0.6 percent to 94.48 U.S. cents in Sydney, compared with 95.01 cents yesterday, when it fell by the most in more than 11 weeks.
U.S. Rate Odds
``I would never take intervention off the table or any policy tool off the table,'' U.S. Treasury's Paulson said in the June 9 interview with CNBC television.
Fed funds futures on the Chicago Board of Trade show a 58 percent chance policy makers will increase the 2 percent target lending rate by at least a quarter-percentage point at their August meeting, compared with 32 percent odds yesterday and 4.6 percent a week ago.
``The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,'' Bernanke said in a speech at a Boston Fed conference June 9.
Economists forecast the U.S. consumer price index increased 0.5 percent in May after a 0.2 percent gain in April, according to the median of 80 projections in a Bloomberg News survey before a government report on June 13. Estimates ranged from increases of 0.2 percent to 0.9 percent.
--------Home sales
New Zealand’s dollar has lost 2.2 percent in the past month against the U.S. currency. Home sales slumped 53 percent in May, the Real Estate Institute of New Zealand Inc. said in a report on Wednesday, reinforcing speculation the central bank will cut interest rates from a record high.
Reserve Bank of New Zealand Governor Alan Bollard last week said he is likely to start cutting the benchmark interest rate from 8.25 percent this year. Lower borrowing costs will curb demand for the New Zealand dollar as policy makers in Europe and the U.S. contemplate interest-rate increases.
Thirteen of 15 economists surveyed by Bloomberg News expect Bollard will cut rates in the third quarter as the economy stalls. Bollard last week said the economy probably contracted 0.3 percent in the first quarter and will grow just 1.2 percent this year, the slowest in a decade.
Australia’s consumer sentiment index dropped 5.6 percent from May to 84.7 points, according to a Westpac Banking Corp. and Melbourne Institute survey released on Wednesday in Sydney.
-----Consumer confidence falls
Consumers, grappling with rising fuel, food and borrowing costs, may pare spending at retailers including David Jones Ltd., slowing an economy that grew at the weakest pace in almost two years in the first quarter.
Reserve Bank of Australia Governor Glenn Stevens last week signaled he’s prepared to raise interest rates again should domestic demand not cool enough to curb inflation.
Declines in the Australian dollar may be limited before a government report that may show jobs rose for a record 19th month in May, keeping unemployment at a three-decade low. The central bank cited concern that a shortage of skilled labor would drive up wages and stoke inflation, already at a 17-year high, as a key reason for raising borrowing costs in March.
The number of people employed rose by 13,500, following April’s 25,400 gain, according to the median estimate of 22 economists surveyed by Bloomberg News. The jobless rate held at 4.2 percent last month, the survey showed. The statistics bureau releases the report tomorrow at 11:30 a.m. in Sydney.
Both the Australian and New Zealand 10-year government bonds were unchanged. The yield on Australia’s 5.25 percent note due March 2019 held at 6.68 percent. The yield on New Zealand’s 6 percent note due December 2017 stood at 6.45 percent.