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

By Candice Zachariahs

Sept. 12 (Bloomberg) -- The Australian and New Zealand dollars rose as Asian equities rallied, increasing investors' appetite for higher-yielding assets.

The currencies climbed from two-year lows against the yen as Asian stocks gained for the first time in four days on speculation a possible purchase of Lehman Brothers Holdings Inc. will help stabilize markets. That gave investors confidence to return to so-called carry trades. Australia's currency also advanced as traders pared bets the central bank will reduce interest rates next month.

``We've got quite a strong rebound under way,'' 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 1.5 percent to 80.74 U.S. cents at 5:57 p.m. in Sydney, from 79.52 late in Asia yesterday. It touched 79.12, close to its lowest since August 2007. It gained 2.2 percent to 86.78 yen from 84.94 yen yesterday. The currency reached 84.09 yen, the lowest since June 2006.

The New Zealand dollar advanced 1.3 percent to 65.66 U.S. cents and 1.9 percent to 70.57 yen.

Lehman Sale

The local dollars gained as the Standard & Poor's 500 Index rose 1.4 percent after the Wall Street Journal reported that Bank of America Corp. is among potential suitors for Lehman.

The U.S. Treasury and Federal Reserve have been working with Lehman on a sale, and a deal may be announced before Asian markets open Sept. 15, said a person familiar with the matter who declined to be identified. Bankers from other firms were reviewing Lehman's books yesterday, according to people with knowledge of the situation, who declined to identify potential acquirers.

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.

Australian Employment

The Australian dollar also rose as a stronger-than-expected employment report yesterday spurred traders to reduce bets on the Reserve Bank of Australia lowering the benchmark to 6.75 percent next month. Traders trimmed bets on the likelihood of a RBA rate reduction in October to 69 percent, from 80 percent yesterday, a Credit Suisse Group index based on overnight swaps trading shows.

The New Zealand dollar briefly pared its advance after a government report showed retail sales fell more than economists forecast in July. New Zealand retail sales fell 0.8 percent from June, 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.

The Australian and New Zealand dollars fell for a third week against the greenback as commodities declined amid concerns about a slowing global economy. The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities declined 2.7 percent this week. 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.

Australian government bonds fell. The yield on the 10-year note rose 2 basis points, or 0.02 percentage point, to 5.68 percent. The price of the 5.25 percent security maturing in March 2019 fell 0.146, or A$1.46 per A$1,000 face amount to 96.640. Bond yields move inversely to prices.

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