N.Z., Australian Dollars Headed for Weekly Gain on Commodities

By Ron Harui and Tracy Withers

Aug. 22 (Bloomberg) -- The New Zealand and Australian dollars headed for a weekly gain on rising commodity prices and prospects for a prolonged U.S. economic slowdown that may prompt the Federal Reserve to delay raising interest rates.

The currencies climbed the most in almost a week in Asian trading as commodities were poised for their biggest five-day gain in 33 years, improving the outlook for the South Pacific economies. New Zealand's dollar advanced for a second day as traders pared bets that the Reserve Bank of New Zealand will lower borrowing costs in coming months.

``The New Zealand dollar should find buying support today on the back of resurgent commodity prices,'' said Khoon Goh, senior markets economist at ANZ National Bank Ltd. in Wellington. ``Further slow grinds up for the kiwi are likely.''

New Zealand's dollar rose 1 percent, the most since Aug. 18, to 71.91 U.S. cents at 12:22 p.m. in Wellington from 71.15 cents late in Asia yesterday and 70.60 cents in New York on Aug. 15. It reached 72.17 cents, the highest since Aug. 7. The currency advanced 1 percent to 78.06 yen from 77.30 yen.

Australia's dollar climbed 1.1 percent, the most since Aug. 18, to 87.87 U.S. cents from 86.89 cents in Asia yesterday and 86.61 cents in New York late last week. It touched 88.14 cents, the strongest since Aug. 12. The currency gained 1 percent to 95.38 yen from 94.41 yen.

The Reuters/Jefferies CRB Index of 19 commodities rose 3.7 percent. A settlement today at that level would mark a 6.2 percent gain for the week, the most since July 1975.

`Commodities Rally'

The price of gold, Australia's third most-valuable commodity export, increased 2.9 percent yesterday. 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.

The U.S. dollar fell after the New York-based Conference Board said yesterday that its index of leading economic indicators dropped by the most since August 2007, adding to signs that the slowdown in the world's biggest economy will deepen in the second half.

``There have been some voices out there saying the commodities rally isn't over yet and the market is receptive to that,'' said Michael Gordon, market strategist at Westpac Banking Corp. in Wellington. ``More likely the gains are a reaction to the weaker U.S. dollar.''

Fed funds futures on the Chicago Board of Trade show a 10 percent chance that the Fed will raise the 2 percent overnight lending rate between banks by a quarter-percentage point at its September meeting, down from 14 percent a week ago.

Government Bonds

Traders are betting that the RBNZ will cut its 8 percent official cash rate by 1.44 percentage points over the next 12 months, down from 1.53 percentage points at the end of last week, according to a Credit Suisse Group index based on interest-rate swaps.

Australian government bonds declined, pushing the yield on the benchmark 10-year note up 5 basis points, or 0.05 percentage point, to 5.79 percent. The price of the 5.25 percent bond maturing in March 2019 fell 0.407, or A$4.07 per A$1,000 face amount, to 95.792.

New Zealand government debt were little changed. The yield on the benchmark 10-year note was at 6.09 percent and the yield on the three-year security was 6.20 percent. Yields move inversely to prices.

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