Australia, N.Z. Dollars Near 1-Week High Versus Yen on Aid Plan

By Candice Zachariahs

Jan. 19 (Bloomberg) -- The Australian and New Zealand dollars advanced to the highest in a week against the yen as equities gained on speculation that the U.S. will expand plans to aid the financial system.

The currencies rose after people familiar with the matter said the U.S. President-elect Barack Obama’s team will use part of the $350 billion remaining from the Troubled Asset Relief Program to help stem foreclosures. In Australia, an index measuring inflation slipped a third month to the slowest since May 2005, raising speculation the central bank will extend its most aggressive cycle of interest-rate cuts in two decades.

“Bailout talk tends to buoy the stock markets, which has a trickle-down effect on other risky assets,” said Imre Speizer, a market strategist in Wellington with Westpac Banking Corp. New Zealand’s dollar may rise toward 55.70 cents and Australia’s will trade at 68.20 cents over the next few days, he said.

Australia’s dollar advanced to 62.19 yen, the highest since Jan. 12, before trading at 61.90 as of 4:14 p.m. in Sydney from 61.04 in New York late last week. The currency rose 1.2 percent to 68.12 U.S. cents from 67.32 cents.

New Zealand’s dollar rose as high as 50.50 yen, the highest since Jan. 13, before buying 50.25 yen from 49.56 yen last week in New York. It gained 1.2 percent to 55.31 U.S. cents.

Trading will be thin today because of Wellington Anniversary day in New Zealand and the Martin Luther King Day holiday in the U.S., Speizer said.

Consumer prices rose 2.2 percent from a year earlier, after climbing an annual 3 percent in November, according to a monthly gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today.

Rate Cuts ‘Inevitable’

“The mix of recessed economic conditions and sharply falling inflation suggests more interest-rate reductions are inevitable,” said Joshua Williamson, a senior strategist at TD Securities in Sydney.

Traders raised bets that the Reserve Bank of Australia will add to last year’s interest-rate cuts when it meets on Feb. 2. Governor Glenn Stevens will reduce the benchmark rate at least 75 basis points, with a 34 percent chance of a bigger cut, according to a Credit Suisse index based on overnight swaps trading. The Reserve Bank of New Zealand will lower rates at least 100 basis points when it meets on Jan. 29, according to a separate Credit Suisse index.

Australia is headed for a recession because of slowing global growth, and the central bank will reduce the cash rate to 2.5 percent soon, Canberra-based research company Access Economics said in a quarterly report today. The Australian dollar will fall to 56 U.S. cents, the report said.

New Zealand Prices

Gains in New Zealand’s currency may be limited this week ahead of data on consumer prices for the fourth quarter that economists expect will show a 0.4 percent decline from the previous three months. Retail data on Jan. 21 will show sales in November fell 0.9 percent from the previous month, according to seven economists surveyed by Bloomberg News.

“We’re calling for a low during the year of 2.5 percent” in New Zealand, Speizer said.

Benchmark interest rates are 5 percent in New Zealand and 4.25 percent in Australia, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency-market moves will erase profits.

Futures traders reversed their bets that the Australian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar compared with bets on a gain -- so-called net shorts -- stood at 4,476 on Jan. 13, compared with net longs of 595 a week earlier.

Australian government bonds fell. The yield on the 10-year note rose eight basis points, or 0.08 percentage point, to 4.06 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.726, or A$7.26 per A$1,000 face amount, to 109.826.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.83 percent.

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