Australian, N.Z. Dollars Advance on Equities, Central Bank Cuts

By Candice Zachariahs

Dec. 4 (Bloomberg) -- The Australian and New Zealand dollars advanced as a rally in U.S. equities raised speculation investors will purchase higher-yielding assets.

The New Zealand dollar was little changed immediately after a decision by the central bank to slash interest rates by a record 1.5 percentage points to 5 percent. Governor Alan Bollard cited “the marked deterioration in the outlook for global growth,” as guiding the decision.

“The market wasn’t surprised by the Reserve Bank’s actions or their general sentiment,” said Cameron Bagrie, chief economist at ANZ National. “It’s all about risk and the big barometer on that front is what’s happening across global equities.”

New Zealand’s dollar gained 0.9 percent to 53.31 U.S. cents as of 7:54 a.m. in Sydney from 52.83 late in Asia yesterday. It advanced 1.3 percent to 49.77 yen from 49.12 yen.

Australia’s currency rose 1.1 percent to 64.82 U.S. cents from 64.14 cents in Asia yesterday. The currency bought 60.56 yen from 59.65 yen.

New Zealand’s central bank has now cut its official cash rate 3.25 percent since it began easing in July, taking the benchmark to its lowest since December 2003. Eleven of 17 economists surveyed by Bloomberg News forecast the move. Six expected a 1 percentage point cut. The rate will fall to 3.5 percent by April next year, Bagrie said.

Central Bank Cuts

The European Central Bank, Bank of England and Sweden’s Riksbank are expected to announce interest rate decisions later today. The Reserve Bank of Australia cut by 1 percentage point to 4.25 percent Dec. 2.

Higher interest rates, compared with 0.3 percent in Japan and 1 percent in the U.S., attracted investors to New Zealand’s assets. The risk in such trades is that currency market moves will erase profits.

The currencies gained after U.S. stocks advanced, led by retailers and banks. The Standard & Poor’s 500 Index rose 2.6 percent and the Dow Jones Industrial Average added 2.1 percent on reports of a jump in online spending and a record increase in mortgage applications.

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