Australian, N.Z. Dollars Gain as U.S. Financial Markets Worsen

By Ron Harui and Candice Zachariahs

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

Australia's currency, known as the Aussie, climbed for a fourth day and New Zealand's gained for a fifth after a stock index of U.S. financial firms slumped 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, 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 dollar rose 0.9 percent to 97.72 U.S. cents as of 4:48 p.m. in Sydney, compared with 96.85 cents late in Asian trading yesterday. It earlier touched 97.77 cents, the strongest level since 1983. The currency bought 103.29 yen from 103.31.

New Zealand's currency strengthened 0.8 percent, the most since June 16, to 76.78 U.S. cents. It touched 76.79 cents, the strongest level since June 9. The currency fetched 81.19 yen from 81.21 yen.

The Australian dollar maintained its gains after the central bank said in minutes of its July 1 meeting released today that ``there had been no material change in the inflation outlook'' and its 12-year-high benchmark interest rate is restraining the economy.

`Well Placed'

The Australian dollar extended the past five days of gains to 2.6 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.

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 on July 9 that Australia's main institutions were ``well placed'' to withstand the current environment.

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

`Attractive' Yield

``The yield is still very attractive in New Zealand,'' said Boris Schlossberg, a senior currency strategist at 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 economists surveyed by Bloomberg was for inflation of 1.4 percent.

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 11 basis points to 6.31 percent. The price of the 5.25 percent bond due March 2019 rose 0.778, or A$7.78 per A$1,000 face amount, to 91.893.

New Zealand's bonds also advanced, with the 10-year yield declining 6 basis points to 6.03 percent. A basis point is 0.01 percentage point.

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