Australian, New Zealand Currencies Rise as Investors Seek Yield

By Lilian Karunungan and Chris Young

Sept. 4 (Bloomberg) -- The Australian and New Zealand currencies rebounded from the lowest in a year on speculation investors will take advantage of those declines to buy the nations' higher-yielding assets.

The Australian dollar advanced for the first time in five days on speculation its 13 percent slump this quarter was excessive, given limited scope for the Reserve Bank of Australia to cut interest rates. Gains were curbed earlier when a government report showed the trade balance unexpectedly turned to a deficit in July, as oil imports jumped and exports fell.

``The Australian dollar can bounce a little bit because it is sort of finding some support levels,'' said Richard Grace, chief currency strategist at the Commonwealth Bank of Australia in Sydney. The trade figure ``provided a bit of a headwind to the Australian dollar's appreciation here in the short term,'' he said.

The Australian dollar bought 83.68 U.S. cents at 4:29 p.m. in Sydney, after falling as low as 82.88 cents after the trade report. The currency was at 82.96 cents in late Asian trading yesterday, when it touched 82.34, the lowest since Sept. 11. Its 14-day relative strength index was 23 versus the dollar yesterday. A level below 30 on the gauge of momentum signals losses may reverse.

New Zealand's currency advanced 0.8 percent to 68.42 U.S. cents in Wellington, from 67.88 cents late in Asia yesterday when it reached 67.36 cents, the lowest since Aug. 17, 2007. The currency rose to 73.83 yen from 73.80 yen yesterday when it touched 73.24, the weakest since August 2006.

Currency Oversold

``When currency traders look at the fundamentals of the Australian dollar they'll see growth will be sustained and the RBA won't cut rates by as much as expected,'' said Sydney-based Joshua Williamson, a senior strategist at TD Securities Ltd. ``The Australian dollar is well oversold.''

The currency will gain to 85 to 86 cents in coming weeks, Williamson forecast.

The Reserve Bank cut the overnight cash-rate target by a quarter-percentage point to 7 percent on Sept. 2, its first reduction in seven years. Policy makers will lower the rate by almost 1 percentage point in 12 months, according to a Credit Suisse Group index based on the trading of interest-rate swaps.

The trade deficit was A$717 million ($596 million) compared with a surplus of A$351 million in June, the Bureau of Statistics said today. The median estimate of 24 economists surveyed by Bloomberg News was for a A$50 million surplus.

New Zealand

New Zealand's dollar gained for the first time in five days as the difference between three-year New Zealand and U.S. interest-rate swaps widened to 3.54 percentage points, near the most since July 18. The currency, known as the kiwi, was also bolstered as traders bet its 3.7 percent loss in the past five days was overdone.

``The New Zealand-U.S. three-year swap spreads have widened over the past week, which may be providing a bit of support for the New Zealand dollar,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``Given the extreme moves we've seen over the past few days, we can't help but think the kiwi is overdue a bit of consolidation.''

The benchmark interest rate of 8 percent in New Zealand compares with 2 percent in the U.S. and 0.5 percent in Japan.

The New Zealand dollar's 14-day stochastic oscillator, a technical indicator which measures momentum, was at 11.00 against the U.S. dollar yesterday, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too rapidly and is poised to rebound.

Government Bonds

Australian 10-year government bonds yield 2.04 percentage points more than similar-maturity U.S. Treasury notes compared with 1.95 percentage points at the end of last week.

Benchmark 10-year bonds declined for a second day. The yield on the 5.25 percent note due March 2019 rose 8 basis points, or 0.08 percentage point, to 5.77 percent. The price fell 0.59, or A$5.93 per A$1,000 face amount, to 95.944.

New Zealand 10-year government bonds advanced for a second day, pushing the yield down 2 basis points to 5.96 percent. The price of the 6 percent security maturing in December 2017 rose 0.130, or NZ$1.30 per NZ$1,000 face amount, to 100.284.

To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net; Chris Young in Sydney at cyoung12@bloomberg.net.