Australia, New Zealand Dollars Reach 2-Week Highs on U.S. Plan

By Tracy Withers

Sept. 22 (Bloomberg) -- The Australian and New Zealand dollars rose to the highest in more than two weeks amid speculation the cost of a U.S. plan to ease credit-market losses will boost debt in the world's biggest economy.

The currencies extended gains after stocks rallied worldwide as the rescue plan boosted demand for higher-yielding assets funded with loans in Japan. Treasury Secretary Henry Paulson's plan, which includes spending $700 billion on soured mortgage-related assets, will increase U.S. debt, analysts said.

``The plan would be financed out of government debt and this triggered heavy selling of the U.S. dollar,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``A recovery in risk appetite and the generally weaker U.S. dollar will provide some support for the New Zealand currency.''

New Zealand's dollar rose to 69.06 U.S. cents at 9:12 a.m. in Wellington, the highest since Sept. 2, from 68.90 cents in late New York trading on Sept. 19. The currency fell to 73.76 yen from 74.04 yen.

Australia's currency traded at 83.72 U.S. cents, the highest since Sept. 4, up from 83.40 cents on Sept. 19. It declined 0.1 percent to 89.48 yen.

The Standard & Poor's 500 index rose 4 percent on Sept. 19 after the government announced its plan to purge banks of bad assets and curb bets on share declines.

``News of the bailout triggered a strong recovery in global equity markets, which underpinned risk appetite and demand for currencies like the New Zealand dollar,'' said Hampton.

The New Zealand dollar surged 1.8 percent against the U.S. dollar and 3.8 percent against the yen on Sept. 19. The Australian currency jumped 5.6 percent against the yen and 3.7 percent versus the greenback.

New Zealand's benchmark interest rates is 7.5 percent and Australia's stand at 7 percent, compared with 0.5 percent in Japan and 2 percent in the U.S., making the nations' assets favorites with investors seeking higher returns.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.