Australian, N.Z. Dollars Advance on U.S. Credit-Market Concerns

By Ron Harui and Candice Zachariahs

July 15 (Bloomberg) -- The Australian dollar climbed to a 25-year high and the New Zealand dollar advanced to the highest in five weeks on speculation the nations' assets will lure investors as losses at U.S. financial institutions deepen.

Australia's currency, known as the Aussie, rose for a fourth day and New Zealand's gained for a fifth as an index of U.S. financial companies posted its largest drop in eight years on speculation regional banks are short of capital. The New Zealand dollar was supported after a government report showed consumer prices rose at the fastest pace in 18 years.

``The Aussie is showing itself to be resilient in the face of financial turmoil in the U.S.,'' said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest bank. ``The grave concerns over the U.S. financial sector are playing out as a net negative for the dollar.''

Australia's currency rose 0.4 percent to 97.26 U.S. cents at 11:20 a.m. in Sydney, compared with 96.85 cents in late Asian trading yesterday. It earlier touched 97.36 cents, the strongest level since 1983. The currency bought 103.14 yen from 103.31.

New Zealand's currency increased 0.4 percent to 76.43 U.S. cents from 76.14 cents late in Asia yesterday. It earlier touched 76.69 cents, the highest since June 10. The currency bought 81.04 yen from 81.21 yen.

The Australian dollar extended the past five days of gains to 2.1 percent, the best performance among the 16 most-active currencies, before Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson address U.S. lawmakers on their response to widening credit-market losses.

`Well Placed'

Global banks and securities firms have reported losses of about $400 billion as the subprime-mortgage market collapsed. Australia's five largest lenders shunned investments linked to the subprime market, helping them avoid the losses reported by firms on Wall Street and in Europe.

Reserve Bank of Australia Governor Glenn Stevens said July 9 that Australia's main institutions were ``well placed'' to withstand the current environment.

The Aussie also was supported as the price of gold, Australia's third-most valuable commodity export, rose to its highest in three months on concern that the U.S. or Israel is preparing to attack Iran.

Israeli warplanes held maneuvers over Iraq, possibly preparing for a strike against Iran, the Jerusalem Post reported on July 11. Israel denied the report. Gold futures for August delivery rose to $973.70 an ounce, the highest since March 19, on the Comex division of the New York Mercantile Exchange.

Gains in the Aussie may be curbed should minutes of the Reserve Bank of Australia's July meeting focus on growth over inflation, wrote David Watt, a senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada's largest bank, in a research note yesterday. The minutes are released at 11:30 a.m. in Sydney.

`Still Very Attractive'

The New Zealand dollar strengthened after a government report showed inflation quickened at the fastest pace in 18 years in the second quarter, prompting traders to pare bets that the central bank will lower interest rates.

``The yield is still very attractive in New Zealand,'' said Boris Schlossberg, a senior currency strategist with currency trader DailyFX.com in New York. ``We're seeing a broad anti- dollar move and the kiwi is benefiting as being part of the group of high-yielders.''

New Zealand's benchmark interest rate of 8.25 percent is the highest of any AAA-rated nation. Reserve Bank of New Zealand Governor Alan Bollard has left borrowing costs at a record high since July last year, betting the slowing economy will curb inflation.

The consumer prices index rose 1.6 percent from the first quarter, Statistics New Zealand said in Wellington today. The median estimate of 12 economists surveyed by Bloomberg was for 1.4 percent. From a year earlier, prices rose 4 percent.

RBNZ Rate Bets

Traders see a 50 percent chance the RBNZ will cut its benchmark rate by a quarter-percentage point at its next meeting on July 24, compared with 59 percent odds yesterday, according to a Credit Suisse Group index based on interest-rate swaps.

Australian government bonds gained, pushing the yield on the 10-year security down 7 basis points, or 0.07 percentage point, to 6.34 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.522, or A$5.22 per A$1,000 face amount, to 91.637.

New Zealand 10-year government bonds gained for a ninth day. The yield on the 10-year note dropped 2 basis points to 6.06 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.