Australian Dollar Gains on Optimism Economy to Weather Crisis

By Chris Young

July 14 (Bloomberg) -- The Australian dollar gained for a fourth day on speculation the nation's economy will withstand widening losses among U.S. financial institutions.

The currency climbed toward its 25-year high of 97.16 U.S. cents reached July 11 after a slump in the shares of Fannie Mae and Freddie Mac, the two largest buyers of U.S. home loans. ``The main Australian institutions are generally well placed'' to prosper in the current environment, Reserve Bank of Australia Governor Glenn Stevens said July 9.

``The high-yielding Australian dollar is benefiting from concerns in the U.S. credit markets,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane, Australia, in a note to clients. ``Its 2.5 cent rally of the past three trading days will be hard to sustain.''

The Australian dollar bought 96.82 U.S. cents at 9:43 a.m. in Sydney, compared with 96.62 in late New York on July 11, according to data compiled by Bloomberg. It earlier reached 97.11 cents, near the strongest level since February 1983 touched late last week.

The Australian dollar pared its advance after Treasury Secretary Henry Paulson sought authority from Congress to buy equity stakes in the two firms and lend to them.

Paulson proposed 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 almost 11 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 and writedowns due to a lack of confidence in credit markets.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.