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

By Ron Harui and Candice Zachariahs
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Aug. 14 (Bloomberg) -- The Australian and New Zealand dollars gained as prices of the commodities the two nations export increased and technical charts showed the currencies' recent losses have been overdone.

The Australian dollar trimmed its five-day decline to 1.8 percent and New Zealand's currency pared the past month's loss to 8.2 percent as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials ended a three-day slump, improving the outlook for the economies.

``There's been a significant rally in commodities,'' said Matthew Johnson, a senior economist at ICAP Australia Ltd. in Sydney. ``It looks like the squaring up'' of short positions in the Australian and New Zealand dollars, he said. A short position is a bet an asset will decline.

Australia's dollar rose 0.6 percent to 87.31 U.S. cents as of 4:40 p.m. in Sydney from 86.84 cents late in Asia yesterday, when it touched 85.93 cents, the lowest level since Jan. 23. The currency gained 0.9 percent to 95.49 yen from 94.60 yen.

New Zealand's dollar climbed 0.8 percent to 70.13 U.S. cents from 69.56 cents late in Asia yesterday, when it reached 68.26 cents, the weakest since Aug. 17, 2007. The currency advanced 1.2 percent to 76.74 yen from 75.80 yen.

The Australian currency pared its loss against the U.S. dollar to 10.2 percent in the past month as the price of gold, the nation's third most-valuable commodity export, increased for the first time this month. 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.

Technical Charts

Australia's dollar has been the worst performer of the 16 most-active currencies this month. Its 14-day relative strength index has fallen to 17.02 against the U.S. dollar and 27.51 versus the yen. The index is a gauge of momentum over a given period and a reading below 30 or above 70 signals that a reversal may occur.

``The Australian dollar has lost ground for more than 10 days straight and for a major currency that is rather unusual,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``A rebound has been overdue. Some of these market moves are looking somewhat overextended.''

The advance in Australia's currency was tempered after Reserve Bank of Australia Deputy Governor Ric Battellino said the central bank ``is in a position to consider'' cutting interest rates.

``He's reiterating that they're going to be preemptive in easing policy,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``It limits the scope for the Aussie to recover too much ground,'' he said, referring to the currency by its nickname.

`Cannot Wait'

Australia's currency has fallen over the past month on speculation policy makers will reduce borrowing costs from a 12- year high of 7.25 percent to boost a slowing economy. Traders expect the central bank to cut interest rates by 1.09 percentage points over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps.

``We cannot wait to see a fall in inflation before we start cutting rates because by then it would be too late,'' Battellino told a parliamentary committee in Sydney today. ``We try to be pre-emptive when we start tightening and pre-emptive when we start easing.''

The New Zealand dollar, known as the kiwi, has dropped 4.5 percent against the U.S. dollar this month after the Reserve Bank of New Zealand reduced its benchmark rate to 8 percent on July 24 and said further cuts were likely.

Investors are betting the RBNZ will lower borrowing costs by 1.53 percentage points in the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps.

Australia's 10-year government bonds declined, snapping five days of gains. The yield on the benchmark 10-year note rose 5 basis points, or 0.05 percentage point, to 5.90 percent. The price of the 5.25 percent security due March 2019 fell 0.367, or A$3.67 per A$1,000 face amount, to 94.935.

New Zealand's three-year government debt declined for an eighth day, with the yield rising 1 basis point to 6.26 percent. The price of the 6 percent note maturing in November 2011 fell 0.013, or NZ$0.13 per NZ$1,000 face amount, to 99.243. Yields move inversely to prices.

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