Australia, New Zealand Dollars Advance for First Week in Three

By Candice Zachariahs

Nov. 28 (Bloomberg) -- The Australian and New Zealand dollars headed for their first weekly advance in three as traders speculated a fresh round of rate cuts and stimulus packages will prompt investors to buy the nations’ higher-yielding assets.

The currencies rose as equity markets were boosted by an $800-billion Federal Reserve package to revive U.S. lending and China’s biggest rate reduction in 11 years. New Zealand’s dollar pared weekly gains after a report showed home-building approvals fell to a record in October. Australia and New Zealand’s central banks are expected to slash interest rates next week.

“The idea that the governments will pump economies up and China has cut rates aggressively, those things are helping stabilize asset prices,” said Greg Gibbs, a currency strategist at ABN Amro Australia Ltd. in Sydney. “If the Reserve Bank of Australia surprises on the lesser side for the cut that could be a positive for the currency next week.”

Australia’s currency rose 3.9 percent this week to 65.71 U.S. cents as of 9:35 a.m. in Sydney from 63.25 cents in New York on Nov. 21 and 65.65 cents late in Asia yesterday. The currency advanced 3.2 percent to 62.63 yen from 60.68 yen in New York.

New Zealand’s dollar gained 2.7 percent to 55.16 U.S. cents from 53.71 cents in New York Nov. 21. It declined today from 55.29 cents in Asia yesterday. It rose 2.3 percent this week to 52.59 yen.

The currencies rose this week after the U.S. announced a program to support lending to homebuyers, consumers and small businesses, reducing demand for the greenback as a safe haven. China, Australia’s biggest trading partner, cut its key lending rate by 1.08 percentage points to 5.58 percent to boost growth amid its deepest economic slowdown in almost two decades.

The announcements helped bring the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a measure of risk aversion, down to its lowest close since Nov. 5.

Rate Cuts

The kiwi, as New Zealand’s currency is called, declined after Statistics New Zealand said home-building approvals plunged 21.9 percent from September. The 1,121 approvals in October were the lowest since the series began in January 1982.

“Financing is a lot harder to secure and therefore we’re seeing a lot of development projects not going ahead at all,” said Khoon Goh, senior economist at ANZ Bank Ltd. in Wellington. “I suspect that the markets will start to price in a larger chance of a 150 basis point rate cut” at the Reserve Bank of New Zealand’s Dec. 4 meeting.

Traders are betting on a 92 percent chance for a reduction of 125 basis points by New Zealand’s central bank, according to a Credit Suisse index based on overnight swaps trading. The Reserve Bank of Australia will slash rates at least 100 basis points when on Dec. 2, a separate Credit Suisse index shows. The chance of a 125-point cut was 36 percent.

RBA May Disappoint

“Our economists think the RBA will likely disappoint current rate market pricing but expect the RBNZ to exceed the 125 basis points of easing that is priced into New Zealand rate markets,” wrote John Horner, a currency strategist at Deutsche Bank AG in Sydney in a research note dated Nov. 27.

Investors should buy the Australian currency if it dips toward NZ$1.17 prior to the RBA’s Dec. 2 meeting “looking for a move toward NZ$1.22 in coming weeks,” he wrote.

The Aussie, as it’s called, traded at $NZ1.1901 from NZ$1.1793 in New York late last week.

Benchmark interest rates are 5.25 percent in Australia and 6.5 percent in New Zealand, compared with 0.3 percent in Japan and 1 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 were little changed with the yield on the 10-year note at 4.635 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.099, or A$0.99 per A$1,000 face amount, to 104.977.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 5.11 percent from 5.13 yesterday.

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