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

By Ron Harui

Aug. 18 (Bloomberg) -- The Australian and New Zealand dollars rose on speculation the Federal Reserve will delay raising interest rates, maintaining the South Pacific nations' yield advantage over the U.S.

Australia's currency halted two days of losses and New Zealand's gained for a second day before a U.S. report tomorrow that may show builders began work in July on the fewest houses in 17 years, deteriorating the outlook for the world's largest economy. The Australian dollar also advanced as the price of gold, the nation's third most-valuable commodity export, climbed for the first time in three days.

``There seem to be renewed concerns about the U.S. economy,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``We have pushed back our Fed rate hike call to the first quarter of next year from year-end. Commodity prices may be a bit supported. The Australian and New Zealand dollars may go higher.''

Australia's currency advanced 0.7 percent to 87.21 U.S. cents as of 11:52 a.m. in Sydney, from 86.61 cents late in New York on Aug. 15. It touched 85.93 cents last week, the lowest since Jan. 22. The currency, known as the Aussie, rose to 96.16 yen from 95.72 yen.

New Zealand's currency, known as the kiwi, climbed 0.3 percent to 70.83 U.S. cents from 70.60 cents late in New York. It reached 68.26 cents on Aug. 13, the lowest since Aug. 17, 2007. The kiwi bought 78.09 yen from 78.02 yen.

The Australian and New Zealand dollars were the two best performers among the 16 most-active currencies against the U.S. dollar, trimming their declines in the last month to 10 percent and 7 percent, respectively, as prices of commodities fell and traders bet the nations' central banks will cut interest rates.

Housing Starts

The U.S. dollar declined as housing starts dropped 9.9 percent to an annual rate of 960,000 in July, according to the median estimate in a Bloomberg News survey ahead of the Commerce Department report tomorrow.

Fed funds futures on the Chicago Board of Trade show a 14 percent chance the U.S. central bank will increase the 2 percent overnight lending rate between banks by a quarter-percentage point at its September meeting, down from an 18 percent chance a week earlier.

Technical indicators suggest the Australian dollar may be due for a recovery. Its 14-day stochastic oscillator against the U.S. dollar was 12.05, signaling this month's loss was excessive. A level below 20 suggests a currency may have weakened too quickly and is poised to rebound.

Technical Analysis, Futures

A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall.

Futures traders cut their bets to the lowest since January that the Aussie will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

Hedge funds and other speculators had 9,053 more bets on an advance in the Australia dollar versus the U.S.'s than those on a drop on Aug. 12, the least since Jan. 29. The number is sometimes seen as a contrary indicator because of the risk of large swings should the currency change direction.

``We can't help but think that a period of consolidation for the currency is in store unless global growth prospects take another leg down,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note.

Interest Rates

Benchmark interest rates are 7.25 percent in Australia and 8 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them popular targets for international investors seeking higher returns.

Traders expect the Reserve Bank of Australia will cut its benchmark rate by 1.06 percentage points within the next year, and the Reserve Bank of New Zealand will lower its official cash rate by 1.48 percentage points in the next 12 months, according to Credit Suisse Group indexes based on interest-rate swaps.

Australian two-year government bonds gained for a fifth day. The yield on the two-year bond fell 1 basis point, or 0.01 percentage point, to 5.77 percent, the lowest since December 2006. Yields move inversely to prices.

New Zealand's government debt was little changed, with the benchmark 10-year yield at 6.19 percent and the three-year yield at 6.25 percent, according to data compiled by Bloomberg.

-- Editor: Chris Young, Simon Harvey

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