Australian, N.Z Dollars Gain as Investors Boost Carry Trade

By Candice Zachariahs

Sept. 12 (Bloomberg) -- The Australian and New Zealand dollars rose as speculation that Lehman Brothers Holdings Inc. will be bought increased investors' appetite for the nations' higher-yielding assets.

The currencies climbed from two-year lows against the yen after oil closed at its lowest in five months and U.S. equities rose, giving investors confidence to return to so-called carry trades. The Aussie, as Australia's currency is known, also strengthened as investors pared bets that the central bank will reduce interest rates at its next meeting in October.

``We've got quite a strong rebound underway,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``Any resolution of the Lehman issue will see risk appetite increased and you're seeing that now on the yen crosses like the Aussie-yen.''

The Australian dollar rose 0.8 percent to 80.17 U.S. cents at 8:42 a.m. in Sydney, from 79.52 in late Asia yesterday. It earlier touched 79.12, close to its lowest since August 2007. It bought 85.71 yen from 84.94 yen yesterday.

The New Zealand dollar advanced 0.6 percent to 65.21 U.S. cents and 0.7 percent to 69.72 yen. The currency pared its advance after a government report showed retail sales fell more than economists forecast in July.

The local dollars were the second- and third-top performing currencies among the 16 most-traded currencies behind the South African rand as the Standard & Poor's 500 Index rebounded from a retreat. It ended 1.4 percent higher after the Wall Street Journal reported that Bank of America Corp. is among potential suitors for Lehman.

Carry Trades

Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the South Pacific nations popular targets for 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.

The Australian dollar also rose as a stronger-than-expected employment report yesterday spurred traders to reduce bets on the Reserve Bank of Australia reducing the benchmark to 6.75 percent next month. The implied yield on the 30-day interbank futures contract maturing in October rose 4.5 basis points to 6.89 percent, according to the Sydney Futures Exchange.

New Zealand retail sales fell 0.8 percent from June when they rose 1 percent, seasonally adjusted, Statistics New Zealand said in Wellington today. The median estimate of 13 economists surveyed by Bloomberg News was for a 0.3 percent decline.

To contact the reporter on this story: Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net