Australia, New Zealand Dollars Rise Versus Yen on Risk Appetite

By Candice Zachariahs

Sept. 19 (Bloomberg) -- The Australian and New Zealand dollars rose for a third day against the yen as the U.S. sought legislation to help financial institutions clear their balance sheets of illiquid assets and ease credit-market losses.

The currencies gained after U.S. and Asian stocks rallied as the rescue plan boosted demand for higher-yielding assets funded with loans in Japan. U.S. Senator Charles Schumer proposed forming an agency to inject funds into financial companies in exchange for equity stakes.

``There was a big rally in the U.S. stock market on the back of proposals which have been aired,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``It has helped relatively those currencies which tend to benefit from risk appetite, such as the Australian dollar.''

The Australian dollar rose 2.7 percent to 86.71 yen at 4:35 p.m. in Sydney from 84.41 yen in late Asian trading yesterday. That's down 2.4 percent from the 88.88 yen it ended last week at in New York. The Aussie, as the currency is known, bought 81.11 U.S. cents from 80.66 cents in Asia yesterday and 82.36 cents on Sept. 12 in New York.

New Zealand's dollar gained 1.7 percent to 72.18 yen from 70.96 yen late in Asia yesterday. It traded at 72.12 yen in New York last Friday. It bought 67.52 U.S. cents from 67.80 cents yesterday and 66.82 cents on Sept 12 in New York.

The currencies climbed today against the yen as the VIX volatility index, a Chicago Board Options Exchange gauge used as a barometer of risk aversion, fell from 36.22 on Sept. 17, the highest in almost six years, to 33.10 yesterday.

Bonds Fall

Australia's currency fell against the U.S. dollar and Japan's yen this week after the collapse of Lehman Brothers Holdings Inc. and concerns surrounding other financial institutions reduced investor appetite for Australian assets.

The Aussie is 18 percent lower than its 25-year high of 98.49 U.S. cents reached on July 16. The kiwi, as New Zealand's currency is called, has fallen 13 percent in that period.

``They are trading underneath fundamental values and are due for retracement,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane. ``The reality is that the currency markets have basically been sidelined in favor of the leadership of what the equity markets are doing.''

Interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., making the nations' assets favorites with investors seeking higher returns.

Australian government bonds fell. The yield on the 10-year note rose 4 basis points, or 0.04 percentage point, to 5.568 percent. The price of the 5.25 percent security maturing in March 2019 fell 0.288, or A$2.88 per A$1,000 face amount, to 97.499. Bond yields move inversely to prices.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.925 percent, from 6.865 percent yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net