Australian, N.Z. Dollars Rise as Investors Boost Carry Trades

By Ron Harui and Tracy Withers

Aug. 27 (Bloomberg) -- The Australian dollar climbed from its weakest level in 11 months and the New Zealand dollar rose from near a two-week low as U.S. and Asian stocks advanced, giving investors more confidence to buy higher-yielding assets.

The currencies also snapped two days of losses versus the yen as analysts said Fannie Mae and Freddie Mac have enough capital to last the year, prompting funds to return to so-called carry trades. The Australian and New Zealand dollars gained as prices rose for the commodities the nations export, improving the outlook for the South Pacific economies.

``Investors are probably showing appetite for high-yielding assets in Australia and New Zealand,'' said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. ``This demand seems to be bolstering the Aussie and the kiwi,'' he said, referring to the currencies by their nicknames.

Australia's dollar advanced 0.9 percent to 85.87 U.S. cents as of 4:53 p.m. in Sydney, after dropping yesterday to 84.94 cents, the lowest since Sept. 20. The currency climbed 0.2 percent to 93.76 yen.

New Zealand's dollar gained 1.7 percent to 70.20 U.S. cents. It touched 68.99 cents yesterday, the weakest since Aug. 13. The currency strengthened 1 percent to 76.64 yen.

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 the South Pacific nations popular targets for carry trades.

Carry Trades

In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.

Gold, Australia's third most-valuable commodity export gained for a second day, adding 0.3 percent. The UBS Bloomberg Constant Maturity Commodity Index rose 0.2 percent yesterday. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.

The New Zealand dollar was the best performer today of the 16 most-traded currencies against the yen as U.S. stocks rebounded from the largest drop in a month. The MSCI Asia Pacific Index gained 0.5 percent after the Standard & Poor's 500 Index yesterday strengthened 0.4 percent.

``A recovery in U.S. stock markets helped underpin yen crosses and the New Zealand dollar rebounded off its lows,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``The risks are skewed in favor of the currency extending its gains.''

Confidence Improves

Demand for the New Zealand dollar was also bolstered after an ANZ National Bank Ltd. survey showed local companies were confident about their future sales and profits for the first time in six months.

A net 4.7 percent of companies expect their sales will improve over the next 12 months from a net 8.2 percent expecting a decline in the July survey, according to the report released by ANZ National Bank in Wellington. The net figure subtracts the number of pessimists from the number of optimists.

Australian government bonds gained for a second day. The yield on the 10-year note fell 3 basis points, or 0.03 percentage point, to 5.72 percent, according to data compiled by Bloomberg. The price of the 5.25 percent bond due March 2019 rose 0.259, or A$2.59 per A$1,000 face amount, to 96.339.

New Zealand government debt advanced for a third day with the yield on the benchmark 10-year note falling 2 basis points to 6.04 percent.

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