Australian, N.Z. Dollars Strengthen as Commodity Prices Advance

By Ron Harui and Candice Zachariahs

July 3 (Bloomberg) -- The Australian and New Zealand dollars rose as prices of commodities the two nations export advanced, improving the outlook for the South Pacific economies.

Australia's dollar gained for a second day and New Zealand's dollar ended two days of losses as the UBS Bloomberg Constant Maturity Commodity Index 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, the U.S. dollar is weak and the trade numbers should be an improvement.''

Australia's dollar rose to 96.18 U.S. cents as of 11:40 a.m. in Sydney from 95.91 cents late in Asia yesterday and a 25-year high of 96.68 cents touched June 30. The currency bought 101.94 yen from 102.37 yen.

New Zealand's dollar strengthened to 76.03 U.S. cents from 75.72 cents late in Asia yesterday. The currency traded at 80.59 yen from 80.82 yen.

The Australian currency was little changed after the Statistics Bureau said in Sydney today the trade deficit shrank to 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.

Overseas Sales

Record prices for natural resources such as iron ore and coal support the Reserve Bank of Australia's view that the nation's $1 trillion economy will be boosted by a 20 percent surge in income from overseas sales. That may offset falling consumer and business confidence.

The Australian dollar approached its 25-year high yesterday after the government said retail sales rose at the fastest pace in six months in May, raising prospects the central bank will increase interest rates from a 12-year high of 7.25 percent.

``The trade balance will probably play a minor role in driving the currency,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada's largest bank. ``The Australian dollar has gained more on broad- based U.S. dollar weakness and a follow-through on yesterday's retail sales data.''

Should the Australian currency close above 96.55 cents it will confirm its ``bullish trend,'' signaling an advance above the 25-year high of 96.68 cents, Strauss said.

Services Index

Gains in the Australian dollar may be limited after a report today showed demand for services fell for a third month in June. The performance of services index declined 4.3 points to 45.4 from May, according to the Commonwealth Bank of Australia and the Australian Industry Group. A reading below 50 indicates the sector is contracting.

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 7 basis points to 6.50 percent, according to data compiled by Bloomberg. The price of the 5.25 percent bond due March 2019 rose 0.478, or A$4.78 per A$1,000 face amount, to 90.445. A basis point equals 0.01 percentage point.

New Zealand government debt was little changed with the 10- year yield holding at 6.34 percent.

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