Australian, New Zealand Dollars Rise on Central Bank Action

By Candice Zachariahs

Oct. 28 (Bloomberg) -- The Australian and New Zealand dollars rose for the first day in six after the Reserve Bank of Australia bought its own currency for the third day as it traded near five-year lows against the greenback.

The currencies also rose versus the yen on speculation Japan's central bank will intervene in currency markets after the Group of Seven industrial nations expressed concern yesterday about ``excessive volatility.'' The Australian dollar has fallen 35 percent against the yen and 26 percent versus the U.S. currency over the past month.

The RBA is ``not trying to draw a line in the sand, just making sure that the market continues to function properly and the moves don't get any more disorderly,'' said John Horner, a currency strategist in Sydney at Deutsche Bank AG. ``We don't see the intervention as a reason to expect the Aussie dollar to climb significantly any time soon,'' he said referring to the currency by its nickname.

The Australian dollar rose 1.3 percent to 61.36 U.S. cents at 4:20 p.m. in Sydney from 60.58 cents late in Asia yesterday. It earlier touched 60.10 cents, the weakest since April 2003. The currency climbed 2.6 percent to 57.58 yen from 56.11 yen yesterday.

New Zealand's dollar gained 1.5 percent to 54.82 U.S. cents from 54.01 in Asia yesterday. It bought 51.40 yen from 50 yen.

The Aussie has been the worst-performer against the dollar and yen among the 16 most-active currencies over the past month as investors dumped higher-yielding assets on concerns over a global recession. New Zealand's currency has fallen 20 percent and 29 percent versus the dollar and yen respectively.

RBA Intervention

Australia's dollar rebounded from an earlier decline after the central bought its own currency as it came close to dropping below 60 U.S. cents for the first time since April 2003.

The central bank intervened in the market, a spokesman for the Sydney-based RBA said today by phone. He declined to be identified. The intervention came amid similar circumstances to those yesterday and on Oct. 24, when the bank ``provided liquidity,'' according to the spokesman.

The currency rallied briefly yesterday after the Group of Seven expressed concern over the ``recent excessive volatility'' in the exchange rate of the yen. The yen declined today against the dollar and euro amid speculation Japan's central bank will sell its own currency for the first time since March 2004.

``On a medium-term basis I would expect the Aussie to pull out of this nose dive, but in the short-term the risks are clearly there,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. ``There is a risk that we push into as low as the mid 50s.''

Interest Rates

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. The differences in yield have attracted investors to the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.

Traders are betting that the RBA will cut borrowing costs by at least 50 basis points when it meets next on Nov. 4, according to a Credit Suisse index based on overnight swaps trading. There is a 76 percent chance of a 75 basis point cut.

Australian government bonds fell for the second day. The yield on the 10-year note rose 19 basis points, or 0.19 percentage point, to 5.253 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 1.545, or A$15.45 per A$1,000 face amount, to 99.970.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.335 percent today from 6.355 yesterday.

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