Australian, New Zealand Dollars Recover From Five-Year Lows

By Candice Zachariahs

Oct. 9 (Bloomberg) -- The Australian dollar rebounded from a 10 percent plunge yesterday after central banks around the world cut interest rates in a bid to ease the worst financial crisis since the Great Depression. New Zealand's currency also rose.

The South Pacific currencies strengthened from their lowest in six years against the yen as the interest rate cuts encouraged investors to buy higher-yielding assets funded in Japan.

``We've now had a round of coordinated central bank easing, at some point that should begin to have a beneficial impact on risk assets and the financial markets,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. ``If you start to see a wee bit more stability come through in Asian equity markets, the chances of a bit more stability in the Australian dollar is actually quite high.''

The Australian dollar rose for the first time in 12 days, gaining 1 percent to 66.53 U.S. cents as of 7:27 a.m. in Sydney from 65.85 in late Asian trading yesterday. It slumped to 64.51 cents yesterday, the weakest since September 2003. The currency climbed 1.3 percent to 66.37 yen, after dropping as much as 12.5 percent yesterday to 63.75, the lowest since September 2002.

New Zealand's dollar strengthened 1.4 percent to 60.16 U.S. cents from 59.36 cents late in Asia yesterday. It dropped to as low as 57.92 yesterday, the lowest since September 2003. It bought 59.97 yen from 59.07.

Global Action

The currencies advanced after the Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each reduced their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. China's central bank separately cut its key rate 0.27 percentage point.

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 the South Pacific nations' assets. The risk in such trades is that exchange-rate fluctuations may erase profits.

Any gains in the Australian dollar may be limited by a government report on employment to be released at 11:30 a.m. in Sydney today. The median estimate of 21 economists surveyed by Bloomberg News was for no change in September, after the number of people employed rose 14,600 in August.

``A weaker print would merely pile on a currency that seems incapable of putting up any defense,'' wrote David Watt, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets, in a research note today.

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