By Candice Zachariahs
Sept. 18 (Bloomberg) -- The Australian dollar traded near the lowest in more than three years against the yen and New Zealand's currency fell as the U.S. takeover of American International Group Inc. failed to restore investor confidence.
The currencies fell as the Standard & Poor's 500 Index lost 4.7 percent, extending its decline from an October record to 26 percent. Goldman Sachs Group Inc. and Morgan Stanley plunged the most ever. That prompted investors to sell Australian and New Zealand assets bought in so-called carry trades using money borrowed in countries with lower interest rates.
``Fear and negative sentiment is driving the market right now,'' said Joshua Williamson, senior strategist at TD Securities in Sydney. ``With the Aussie and kiwi against the yen we've seen further repatriation of funding currencies on carry-trade unwind,'' referring to the local dollars by their nicknames.
The Australian dollar fell 1.2 percent to 82.98 yen at 1:44 p.m. in Sydney from 84.00 yen in late Asian trading yesterday. It touched 81.61, close to the three-year low of 81.45 yen reached on Sept. 16. The Aussie was little changed at 79.30 U.S. cents from 79.34 cents yesterday.
New Zealand's dollar fell 0.1 percent to 69.61 yen from 69.68 yen late in Asia yesterday. It rose 1.1 percent to 66.58 U.S. cents from 65.83 cents.
Asian stocks tumbled to the lowest in three years as Morgan Stanley weighed a merger with banks including Wachovia Corp. to regain investor confidence amid concerns more financial firms will collapse after the AIG takeover.
Currency Volatility
The currencies fell versus the yen as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 36.22 yesterday, the highest since October 2002.
The Australian dollar has dropped 19 percent against the greenback since touching a 25-year high on July 16 and the kiwi has lost 14 percent as concerns about global growth reduced investor appetite for the currencies.
What's moving currencies now is ``just transactional flows being put through, no one really wants to hold on to the parcel,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The fundamental direction is still weaker,'' for the kiwi.
The Bank of Japan kept its overnight lending rate at 0.5 percent yesterday and the U.S. Federal Reserve kept its benchmark rate at 2 percent Sept. 16. Interest rates are 7 percent in Australia and 7.5 percent in New Zealand, making them favorites with investors seeking higher returns.
Carry Trades
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.
Australian government bonds rose. The yield on the 10-year note fell 10 basis points, or 0.10 percentage point, to 5.471 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.745, or A$7.45 per A$1,000 face amount, to 98.230. Bond yields move inversely to prices.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.86 percent, from 6.89 percent yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Posts
No comments:
Post a Comment