Australian Dollar Gains as Spending Surges; N.Z. Dollar Rises

By Ron Harui and Tracy Withers

Aug. 28 (Bloomberg) -- The Australian dollar rose after a government report showed business investment increased almost three times as much as economists estimated in the second quarter. The New Zealand dollar gained.

Australia's dollar advanced for a second day on speculation the economy will be resilient enough to warrant fewer central bank interest-rate reductions than earlier forecast. New Zealand's dollar climbed for a second day on optimism the economy is recovering from a first-half recession, prompting traders to pare bets on lower borrowing costs.

``The report will encourage the Reserve Bank of Australia to be measured in its easing cycle,'' said Adam Carr, Sydney-based senior economist at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``It's very modestly bullish for the Aussie dollar,'' he said, referring to the currency by its nickname.

The Australian dollar climbed 0.7 percent to 86.76 U.S. cents at 4:48 p.m. in Sydney, from 86.05 cents before the report and 86.18 cents late in Asia yesterday. It reached 84.94 cents on Aug. 26, the lowest since Sept. 20. The currency strengthened 0.7 percent to 94.48 yen from 93.78 yen.

The New Zealand dollar advanced 0.6 percent to 70.62 U.S. cents from 70.17 cents in Asia yesterday. It touched 68.26 cents on Aug. 13, the lowest since August 2007. The currency, known as the kiwi, rose 0.8 percent to 76.93 yen from 76.36 yen.

Capital Spending

Australia's currency trimmed this week's loss against the U.S. dollar to 0.2 percent after the Bureau of Statistics said in Sydney that capital spending rose 5.7 percent from the previous three months, when it gained a revised 1 percent. The median estimate of economists surveyed by Bloomberg News was for a 2 percent gain.

Traders are betting the RBA will cut its 7.25 percent benchmark interest rate by 1.09 percentage points within the next year, down from a forecast of 1.14 percentage points yesterday, according to a Credit Suisse Group index based on interest-rate swaps.

Benchmark rates in Australia and those of 8 percent in New Zealand compare with 2 percent in the U.S. and 0.5 percent in Japan, making the two South-Pacific nations popular destinations for international investors seeking higher returns.

New Zealand's dollar was the third-best performer among the 16 most-active currencies versus the U.S. dollar today after a survey yesterday showed business confidence improved in August for the first time in six months.

`More Positive'

``The business confidence data revealed a more positive outlook,'' said Philip Borkin, an economist at ANZ National Bank Ltd. in Wellington. ``U.S. dollar fortunes may wane'' against the New Zealand dollar, he said.

Companies were positive about sales and profits over the next 12 months, according to an ANZ National Bank Ltd. survey. A second measure of economic confidence improved to minus 21 from minus 43, and firms were less pessimistic about profits, hiring and investment plans.

New Zealand's $105 billion economy was probably in a recession in the six months through June, the Treasury Department said Aug. 4.

A separate Credit Suisse Group index shows the Reserve Bank of New Zealand may lower its official cash rate by 1.41 percentage points over the next 12 months, down from 1.45 points yesterday.

Australian 10-year government bonds fell, snapping a two-day winning streak, with the yield rising 5 basis points, or 0.05 percentage point, to 5.77 percent. The price of the 5.25 percent security due March 2019 declined 0.366, or A$3.66 per A$1,000 face amount, to 95.973.

New Zealand 10-year government debt gained for a fourth day, with the yield falling 3 basis points to 6.01 percent. The price of the 6 percent note maturing in December 2017 rose 0.184, or NZ$1.84 per NZ$1,000 face amount, to 99.924. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net