By Candice Zachariahs
Nov. 5 (Bloomberg) -- The Australian and New Zealand dollars advanced to two-week highs as U.S. equities posted their biggest Election Day rally in 24 years, prompting investors to buy higher-yielding assets.
The currencies also rose as prices increased for commodities the two nations export. The Australian dollar dropped yesterday after the central bank cut interest rates to 5.25 percent, reducing appetite for so-called carry trades where low-cost funds are invested in assets generating higher returns.
``Quite clearly the key determinant is stocks,'' said Craig Ferguson, a currency hedge fund manager at Antipodean Capital Management in Melbourne. ``The odds are that stocks may extend their gains and then pause over the next couple of days and that would limit the Aussie and the kiwi upside,'' he said, referring to the currencies by their nicknames.
Australia's currency rose 1.1 percent to 68.94 U.S. cents as of 4:39 p.m. in Sydney from 68.17 cents late in Asia yesterday. The currency earlier touched 70.14 cents, the highest since Oct. 21. The currency advanced as much as 4.2 percent to 70.52 yen, also the most since Oct. 21, before trading at 68.52 yen.
New Zealand's dollar gained 1.1 percent to 60.39 U.S. cents from 59.75 in Asia yesterday. It rose as high as 61.29 cents, the strongest since Oct. 22. It bought 60.03 yen from 59.32.
The currencies pared gains on speculation Barack Obama's victory in the U.S. presidential election and Democrat gains in Congress will accelerate policies aimed at overcoming a recession in the world's biggest economy.
Stocks Advance
The South Pacific nations' currencies advanced as stocks rose on the Standard & Poor's 500 Index and the Dow Jones Industrial Average, led by energy and banking shares. Asian stocks gained as Obama was elected the 44th president of the U.S.
They also strengthened as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials rose by the most since Oct. 29 led by gold and crude oil, Australia's third- and fourth-most valuable commodity exports. Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's.
The Aussie ``has long forgotten the surprise 0.75 percentage point cut yesterday and the focus remained on increased risk appetite,'' wrote Toronto-based Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``Increased risk appetite benefited equities, commodities and carry trades.''
Benchmark interest rates are 0.3 percent in Japan and 1 percent in the U.S., attracting investors to the South Pacific nations' assets. The interest rate in New Zealand is 6.5 percent.
Economy Slowing
Australian Treasurer Wayne Swan said today the economy will grow at a slower 2 percent pace in the 12 months to June 30, 2009 from a May forecast for 2.75 percent, amid the global financial crisis. Separately, a government report showed that the nation's trade surplus unexpectedly widened in September as exports of coal and iron ore surged.
Australian government bonds fell. The yield on the benchmark 10-year note rose 7 basis points to 5.337 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 0.558, or A$5.58 per A$1,000 face amount, to 99.308. A basis point equals 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.07 percent today from 6.31 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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