Australian, New Zealand Dollars Reach 3-Week Highs as Oil Jumps

By Candice Zachariahs

Sept. 23 (Bloomberg) -- The Australian and New Zealand dollars reached their highest levels in three weeks as prices rose for commodities the nations export and the U.S. currency slid on concern the economy is headed for a recession.

The South Pacific currencies rose as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials advanced by the most in a month. The greenback weakened against the euro on concern a $700 billion plan to buy troubled assets from banks will inflate the budget deficit and fail to prevent a slowdown.

``U.S. weakness overnight has been driving the Aussie,'' said Glenn Wittingslow, head of foreign-exchange options at St. George Bank Ltd. in Sydney. ``But over the short term I'd be willing to sell some Aussie and try and pick it up a little bit lower.''

The Australian dollar rose 1.4 percent to 84.65 U.S. cents at 10:43 a.m. in Sydney from 83.47 cents late in Asia yesterday. It touched 85.19 cents, the highest since Sept. 2. Wittingslow said the currency, known as the Aussie, may reach 83.50 U.S. cents and recommends buying at that level. The Australian dollar bought 89.14 yen from 88.73 yen yesterday.

New Zealand's dollar reached 69.53 U.S. cents, the highest since Sept. 2, before trading at 69.18 U.S. cents from 68.74 cents yesterday. It bought 72.85 yen from 73.04.

The currencies rose on speculation that the worst may be over for commodities that have tumbled this quarter on a combination of slowing economic growth and a stronger U.S. dollar.

Gold, Oil

Gold, Australia's third most-valuable commodity export, extended gains in New York yesterday after advancing last week by the most since October 1999. The November futures contract for crude oil, the nation's fourth most-valuable raw material export, yesterday exceeded $110 a barrel for the first time in two weeks. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.

The currencies also gained as the U.S. dollar weakened the most against the euro since January 2001 and U.S. stocks tumbled, led by banks, retailers and technology companies. The Standard & Poor's 500 Index lost 3.8 percent, erasing almost half of its rally over the previous two days.

The Australian dollar ``vaulted higher overnight on the strength of the euro, rally in commodity markets and broad-based dollar selling,'' Nick Jonas, a Brisbane-based treasury analyst at Suncorp-Meltway Ltd., wrote in a note today. He expects ``higher-yielding currencies to consolidate gains today.''

Rapid Rally

The Australian dollar has risen 6.9 percent since Sept. 16, strengthening today for a fifth straight day. Citigroup Global Markets Inc. advised clients to sell the Australian currency as its recent rally could ``snap back.''

``We still like the trade but it has come a very long way in a short period,'' wrote analysts led by Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets yesterday. He advised selling the currency at 84.96 U.S. cents, with a ``view towards re-entering on a dip.''

Australian government bonds rose. The yield on the 10-year note fell 3 basis points, or 0.03 percentage point, to 5.798 percent. The price of the 5.25 percent security maturing in March 2019 rose 0.228, or A$2.28 per A$1,000 face amount, to 95.741. Bond yields move inversely to prices.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.990 percent, from 6.965 percent yesterday.

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