Australian Dollar Gains on Growth View; N.Z. Dollar Unchanged

By Ron Harui and Tracy Withers

July 14 (Bloomberg) -- The Australian dollar rose on speculation the economy will withstand widening losses among U.S. financial institutions. The New Zealand dollar was little changed as retail sales dropped by the most in four years.

Australia's currency approached a 25-year high as concerns that the U.S. subprime-mortgage crisis may deepen prompted investors to seek higher-yielding assets in the South Pacific nation. New Zealand's currency snapped a three-day advance on prospects its economy may have entered a recession, backing the case for the central bank to lower interest rates.

``We actually think the Australian dollar could achieve parity within two to three weeks if the markets start to cave in on the U.S. dollar due to renewed financial markets turmoil,'' said Clifford Bennett, chief economist at Sonray Capital Markets Ltd. in Sydney, in a research note today.

Australia's currency bought 96.84 U.S. cents at 2:20 p.m. in Sydney from 96.62 late in New York on July 11. It earlier reached 97.11 cents, near the July 11 high of 97.16 cents, which was the strongest level since February 1983. The currency traded at 103.04 yen from 102.69 yen.

New Zealand's currency was little changed at 76.15 U.S. cents from 76.14 cents late in New York on July 11. The currency bought 81.01 yen from 80.94 yen.

Fannie, Freddie

The Australian dollar is the second-best performer among the 16 most-active currencies in the past five days, gaining 1.7 percent, as Fannie Mae and Freddie Mac, the two largest buyers of U.S. home loans, suffered a collapse in confidence sending their share values down by about half last week.

Treasury Secretary Henry Paulson asked that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in Fannie Mae and Freddie Mac, and to increase their lines of credit with the department from $2.25 billion each.

Australia's currency has risen 10.3 percent this year on speculation the nation's financial institutions have avoided the worst of the U.S. subprime crisis that's caused more than $400 billion in losses due to a lack of confidence in credit markets.

`Generally Well Placed'

``The main Australian institutions are generally well placed'' to prosper in the current environment, Reserve Bank of Australia Governor Glenn Stevens said July 9.

New Zealand's currency fell after retail spending slumped 1.2 percent in May from April when it increased the same amount, according to a government report. The median estimate in a Bloomberg News survey of 12 economists was for a 0.1 percent decline.

``Retail activity remains very weak and supports the notion that the New Zealand economy is in a technical recession, which should cap the New Zealand dollar,'' said Sue Trinh, senior currency strategist in Sydney at RBC Capital Markets.

The nation's economy contracted 0.3 percent in the first quarter from the fourth quarter, Statistics New Zealand said on June 27. Eight of 13 economists surveyed by Bloomberg expect it also shrank in the second quarter, putting the economy in its first recession since 1998.

Australian government debt fell. The yield on the 10-year note rose 5 basis points to 6.41 percent. The price of the 5.25 percent bond maturing in March 2019 declined 0.353, or A$3.53 per A$1,000 face amount, to 91.107. A basis point is equivalent to 0.01 percentage point.

New Zealand 10-year government bonds gained for an eighth day. The yield on the 10-year note dropped 2 basis points to 6.10 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net