By Ron Harui
Jan. 6 (Bloomberg) -- The Australian dollar rose to the highest in more than 2 1/2 months against the greenback and New Zealand’s currency gained as prices increased for commodities that make up more than half the nations’ exports.
The currencies gained for a fourth day versus the yen as stocks rose amid optimism U.S. President-elect Barack Obama’s fiscal stimulus will help the world’s largest economy recover from recession, reviving investors’ appetite for higher-yielding assets. The Australian dollar touched an eight-week high against the yen as the yield gap between two-year Australian and Japanese bonds widened to the most in more than a month.
“There has been an improvement in the risk environment as equity markets had a positive start to the new year,” said Imre Speizer, a market strategist in Wellington with Westpac Banking Corp. “U.S. data, while still poor, hasn’t been as bad as the market expected and commodities also recovered. Obama’s planned tax cuts also may bolster consumer and business sentiment.”
Australia’s dollar climbed to 71.14 U.S. cents at 12:40 p.m. in Sydney, from 71.02 cents in late Asian trading yesterday. It touched 72.05 cents, the highest since Oct. 15. It advanced to 66.26 yen from 66.18 yen. The currency reached 67.26 yen, the strongest since Nov. 11.
New Zealand’s dollar rose to 58.72 U.S. cents from 58.43 cents in Asia yesterday. It touched 59.18 cents, matching yesterday’s two-week high. The currency gained to 54.70 yen from 54.44 yen. It reached 55.22 yen, the most since Nov. 14.
The Reuters/Jefferies CRB Index of 19 raw materials climbed to 237.33 yesterday, its strongest since Dec. 1, as crude oil rose to a five-week high amid speculation the conflict in the Gaza Strip may disrupt Middle-East oil supplies and on signs that OPEC production cuts are being implemented. The MSCI Asia-Pacific Index of regional shares advanced 0.6 percent.
Commodities
Commodities including coal, iron ore, gold and oil account for 60 percent of Australia’s export revenue. New Zealand relies on raw materials including milk and timber for 70 percent of its overseas shipments.
The Australian dollar probably will trade between 71 and 72 U.S. cents and may break above 72 cents, Speizer said. The New Zealand currency is unlikely to rise above 59.20 U.S. cents, where it is encountering strong resistance. It may trade between that level and 58.60 cents, he said.
The yield advantage of two-year Australian government bonds over similar-maturity Japanese debt reached 2.60 percentage points this week, the most since Nov. 27.
Australia’s and New Zealand’s currencies gained for a second day versus the greenback after Democratic aides said Obama is asking that tax cuts make up 40 percent of a stimulus package worth about $775 billion.
‘Potential to Surprise’
The Chicago Board Options Exchange Volatility, or VIX, slipped 0.3 percent to 39.08, the lowest closing level since Sept. 26, indicating increased risk appetite. It surged to 89.53 on Oct. 24, an intra-day record in its 18-year history. The volatility index is known as Wall Street’s “fear gauge” because it almost always rises when stocks drop.
The Australian dollar, which last year posted its worst annual drop on record, may resume its decline before a U.S. report this week that may show the nation’s economy lost more jobs in 2008 than in any year since 1945, BNP Paribas SA said.
“The payrolls report has potential to surprise on the downside, implying that we could see another round of risk aversion,” wrote BNP’s analysts led by Hans-Guenter Redeker, global head of foreign-exchange strategy in London, in a research note yesterday. “We expect the Australian dollar’s upside to be limited.”
BNP Paribas forecasts Australia’s dollar will weaken to 52 U.S. cents by the end of March and will decline further to 47 cents by the end of June, according to the note.
Carry Trade
Payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to the median estimate of economists surveyed by Bloomberg News ahead of Labor Department figures due Jan. 9.
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 in the U.S., attracting investors through so- called carry trades.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.
Australian government debt advanced. The yield on the two- year bond fell one basis point, or 0.01 percentage point, to 2.98 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due August 2010 gained 0.009, or A$0.09 per A$1,000 face amount, to 103.524.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, climbed to 4.37 percent from 4.36 percent yesterday.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
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