Australia, New Zealand Dollars Jump as Stocks, Commodities Rise

By Candice Zachariahs

Oct. 29 (Bloomberg) -- The Australian and New Zealand dollars jumped the most in more than two decades against the yen as a rally in U.S. stocks and reports Japan may cut rates prompted speculation investors will buy higher-yielding assets.

The currencies advanced against the dollar after prices of commodities the two nations export gained. The Nikkei reported yesterday the Bank of Japan may reduce its target lending rate by 0.25 percentage point. The South Pacific nations' dollars rallied yesterday as the Reserve Bank of Australia bought its own currency for the third day amid declines.

``It's a combination of things with higher commodities, firmer equity prices and a bit of RBA assistance down in the low 60s,'' said Glenn Wittingslow, head of foreign-exchange options at St. George Bank Ltd. in Sydney. ``I won't say we're out of the woods, but it's nice to see a little bit of breathing air.''

Australia's currency gained as much as 10.8 percent against the yen, the most since it started freely trading in 1983, and bought 63.67 yen at 10:12 a.m. in Sydney from 58.47 yen yesterday. The local dollar advanced for a second day, gaining 4.9 percent to 64.89 U.S. cents from 61.87 cents late in Asia yesterday. The currency yesterday dropped as low as 60.10 cents, the weakest since April 2003.

New Zealand's currency jumped the most since 1985 against the dollar and yen before trading at 56.51 yen from 51.80 late in Asia yesterday. It bought 57.52 U.S. cents from 54.81 cents.

The currencies gained after the Dow Jones Industrial Average posted its second-best point gain as the cheapest valuations in 23 years lured investors back to equities.

Bank of Japan

The yen fell for a second day against the U.S. dollar, extending its biggest decline since 1974, after the Nikkei newspaper said the Bank of Japan is ``leaning toward'' reducing its target rate by a quarter-percentage point to 0.25 percent on Oct. 31.

The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials rose for a second day yesterday. 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.

New Zealand's dollar advanced as the Federal Reserve authorized a $15 billion swap line with New Zealand's central bank to provide U.S. dollars, the 10th such currency-exchange program aimed at easing the worldwide credit freeze.

Benchmark interest rates are 6 percent in Australia and 6.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., attracting investors to the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.

Australian government bonds advanced. The yield on the 10- year note fell 2 basis points, or 0.02 percentage point, to 5.263 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.147, or A$1.47 per A$1,000 face amount, to 99.890.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, was unchanged at 6.335 percent today.

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