Australia, N.Z. Dollars Gain for Fourth Day as Equities Advance

By Candice Zachariahs

Nov. 27 (Bloomberg) -- The Australian and New Zealand dollars advanced a fourth day, the longest winning streak in more than two months, as investors bought higher-yielding assets after gains in equities and China's biggest rate cut in 11 years.

The currencies pared gains after a government report showed Australian investment slumped in the third quarter and a New Zealand survey indicated companies are the most pessimistic in two decades. Economists forecast that the central banks of both countries will reduce interest rates when they meet next week.

``The Australian dollar is following the gyrations on equity markets,'' said Jim Vrondas, manager of corporate business at online foreign-exchange dealer OzForex Ltd. ``For the time being the Aussie still looks like a sell on rallies.''

Australia's currency, known as the Aussie, rose 0.4 percent to 64.99 U.S. cents as of 4:07 p.m. in Sydney from 64.78 cents late in Asia yesterday. The currency advanced 0.2 percent to 61.78 yen.

New Zealand's dollar gained 0.4 percent to 55.07 U.S. cents from 54.88 in Asia yesterday. It bought 52.37 yen from 52.22.

Capital spending by Australian businesses rose 0.6 percent in the third quarter from the previous three months, when it increased a revised 7.4 percent, the Bureau of Statistics said in Sydney today. The median estimate of 14 economists surveyed by Bloomberg News was for a 0.8 percent gain.

Rate Cuts Coming

``Those numbers suggest investment intentions still remain reasonably robust, though they have been scaled back a bit,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``It hasn't been enough for us to change our view on the Reserve Bank's expected cash rate reduction in December.''

CBA expects the central bank to cut its benchmark interest rate by 75 basis points, though there is a ``risk of a greater reduction,'' he said.

Traders are betting the Reserve Bank of Australia will slash rates at least 100 basis points when it meets Dec. 2, according to a Credit Suisse index based on overnight swaps trading. The chance of a bigger 125-point cut was pared back to 36 percent from 56 percent yesterday, according to the index. A basis point is 0.01 percentage point.

New Zealand's central bank will cut its benchmark interest rate by 1.5 percentage points Dec. 4 amid a deepening domestic recession, TD Securities forecast today.

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 erase profits.

Stocks Advance

The currencies strengthened in tandem with Asian stocks after the Standard & Poor's 500 index of U.S. shares yesterday capped its best four-day surge since 1933. Exxon Mobil Corp. and Chevron Corp., the biggest U.S. oil companies, were among the biggest contributors to the advance as crude traded above $50 a barrel for a third day. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials gained 2.5 percent.

China, Australia's biggest trading partner, cut its key lending rate yesterday by 1.08 percentage points to 5.58 percent to boost growth amid its deepest economic slowdown in almost two decades.

Australian government bonds declined. The yield on the 10- year note advanced three basis points, or 0.03 percentage point, to 4.65 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.266, or A$2.66 per A$1,000 face amount, to 104.895.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 5.13 percent from 5.15 yesterday.

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