Australian, New Zealand Dollars Gain as U.S. Equities Recover

By Candice Zachariahs

Nov. 19 (Bloomberg) -- The Australian and New Zealand dollars advanced for the first day in three as U.S. equities rebounded after the Standard & Poor's 500 index fell below its lowest closing levels since 2003.

The Australian dollar gained before speeches today from policy makers at the Reserve Bank of Australia, which is expected to cut interest rates next month. The RBA said yesterday in the minutes of its Nov. 4 meeting that it had seen benefits in moving monetary policy ``quickly to a neutral position''.

Currency markets are ``still following the gyrations intra- day in equities but we're seeing a little less of that strength in the U.S. dollar and the yen,'' said Greg Gibbs, a currency strategist at ABN Amro Australia Ltd. in Sydney. ``It's an indication that some of the very rapid deleveraging that was driving up the U.S. dollar has slowed.'' The Australian dollar, he said, was benefiting from that.

Australia's currency rose 0.7 percent to 65.07 U.S. cents as of 8:05 a.m. in Sydney from 64.61 cents late in Asia yesterday. It advanced 1.3 percent to 63.03 yen. The Aussie, as the currency is called, will trade between 63.5 cents and 67 cents today, Gibbs said.

New Zealand's dollar gained 0.5 percent to 55.23 U.S. cents from 54.98. It bought 53.53 yen from 52.94.

The Australian dollar plunged 25 percent versus the greenback over the past three months and 34 percent against the yen after the Sept. 15 collapse of Lehman Brothers Holdings Inc. caused money markets to seize up and equities to tumble. The New Zealand dollar dropped 23 percent and 32 percent against the dollar and yen, respectively, in the same period.

Benchmark 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 borrow in Japan and the U.S. to buy the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.

Traders yesterday were betting the RBA will lower rates by at least 0.75 percentage point at its next meeting on Dec. 2, according to a Credit Suisse index based on overnight swaps trading yesterday. There was a 69 percent change of a one percentage point reduction.

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