Australian, New Zealand Dollars Gain on Global Rescue Plans

By Candice Zachariahs

Oct. 14 (Bloomberg) -- The Australian and New Zealand currencies rose for a second day as markets rallied after governments worldwide announced measures to stabilize financial systems, prompting investors to buy higher-yielding assets.

The currencies, favorites for so-called carry trades, rose against the dollar and the yen after U.S. stocks rallied on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global system with dollars. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee loans and buy stakes in lenders.

``The market's been cheered by all the colossal plans announced since the weekend,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``How long the recovery is going to last will depend crucially on short-term lending costs. Tentatively, the action plans seem to have helped alleviate some of the money market pressures.''

The Australian dollar jumped 4.1 percent to 69.96 U.S. cents as of 7:30 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. The currency rose 5.3 percent to 71.11 yen, from 67.57.

New Zealand's dollar gained 1.7 percent to 61.69 U.S. cents from 60.65 cents late in Asia yesterday. It bought 62.95 yen.

The currencies rose as U.S. stocks staged the biggest rally in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points.

The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, dropped from a record to 54.99 yesterday.

Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to buy the South Pacific nations' assets using loans in lower-cost currencies. The risk in such carry trades is that exchange-rate fluctuations may erase profits.

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