Australian, N.Z. Dollars Rise as Fed May Delay Raising Rates

By Ron Harui and Candice Zachariahs

July 3 (Bloomberg) -- The Australian and New Zealand dollars rose on speculation the Federal Reserve will delay raising interest rates, maintaining the yield advantage of the South Pacific nations over the U.S.

Australia's dollar gained for a second day and New Zealand's dollar ended two days of losses before a U.S. report today that may show payrolls dropped for a sixth month, prompting traders to add to bets the Fed will keep borrowing costs unchanged. The difference in yield between two-year Australian and U.S. bonds widened to 4.27 percentage points, near the most since June 11.

``There's still good investor appetite for the Australian and New Zealand currencies,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``Some people are talking about interest-rate differentials. We are looking for the Fed to be unchanged in August and September.''

Australia's dollar rose to 96.18 U.S. cents as of 1:51 p.m. in Sydney from 95.91 cents late in Asia yesterday, nearing the 25-year high of 96.68 cents touched June 30. The currency bought 101.98 yen from 102.37 yen.

New Zealand's dollar strengthened to 75.98 U.S. cents from 75.72 cents late in Asia yesterday. The currency traded at 80.57 yen from 80.82 yen.

Benchmark interest rates are 7.25 percent in Australia and 8.25 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them popular among investors seeking higher returns. The yield spread between 10-year New Zealand and U.S. debt was little changed at 2.37 percentage points, close to the widest since June 11.

Commodities Advance

Futures on the Chicago Board of Trade showed a 25 percent chance the Fed will raise its target rate for overnight lending between banks by a quarter-percentage point to 2.25 percent at its meeting on Aug. 5, compared with 36 percent odds a week ago.

The Labor Department will probably report today that U.S. employers eliminated 60,000 jobs including government positions last month, according to the median forecast of 79 economists surveyed by Bloomberg.

The Australian and New Zealand dollars were also bolstered as the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities climbed to a record, boosting speculation the two countries will weather a global economic slowdown.

Raw materials account for 60 percent of Australia's exports and sales of commodities including lumber make up 70 percent of New Zealand's overseas shipments.

``We're positive on the Aussie, we generally regard it as a buy,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, referring to the currency by its nickname. ``Commodities are overall supportive.''

Trade Deficit

The Australian currency was little changed after the Statistics Bureau said in Sydney today the trade deficit was at A$965 million ($928 million) in May from a revised A$12 million surplus in April. The median estimate of 24 economists surveyed by Bloomberg News was for a deficit of A$900 million.

The New Zealand dollar rose against the U.S. currency after the Dow Jones Industrial Average fell 1.5 percent yesterday, sending the stock index into a bear market.

``The recovery is against a much weaker U.S. dollar and not so much against the other currencies,'' RBC's Strauss said. ``The New Zealand dollar is still taking its guidance from what's happening in the rest of the world, especially on the equity side.''

Australian government bonds gained for the first day in three. The yield on the 10-year note fell 9 basis points to 6.48 percent, according to data compiled by Bloomberg. The price of the 5.25 percent bond due March 2019 rose 0.635, or A$6.35 per A$1,000 face amount, to 90.602.

New Zealand government debt was little changed with the 10- year yield holding at 6.34 percent. A basis point equals 0.01 percentage point.

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