Australian, New Zealand Dollars Advance as Equities Rebound

By Candice Zachariahs

Jan. 22 (Bloomberg) -- The Australian and New Zealand dollars advanced for the first time in three days as a rebound in stocks fueled speculation investors will be keener to purchase higher-yielding assets.

The currencies strengthened versus the U.S. dollar after the Dow Jones Industrial Average advanced the most in a month, led by financial shares. They pared gains after South Korea, Australia’s fifth-largest export market, reported the biggest contraction in its economy since the Asian financial crisis a decade ago.

“The correlation between the Dow and the Aussie is pretty high at the moment so we’d expect the Aussie market to bounce back,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia Ltd. The Australian dollar, nicknamed the Aussie, may climb to 67 U.S. cents, while New Zealand’s currency will trade between 53 and 54 cents, he said.

Australia’s currency rose 1.4 percent to 65.70 U.S. cents as of 4:30 p.m. in Sydney from 64.82 cents late in Asia yesterday. The currency advanced 0.5 percent to 58.57 yen.

New Zealand’s dollar gained 1.6 percent to 52.93 U.S. cents from 52.11 late in Asia yesterday, when it touched a six-year low of 51.69. It strengthened to 47.18 yen from 46.85.

Australia’s benchmark interest rate is 4.25 percent and New Zealand’s is 5 percent, compared with as low as zero in the U.S. and 0.1 percent in Japan. Shares gains help damp risk aversion, encouraging investors to use funds from countries with low interest rates to buy higher-yielding assets elsewhere.

Obama’s Stimulus

Regional stocks followed U.S. equities higher on reports President Barack Obama’s economics team will combine a bank- rescue plan with the $825 billion stimulus package being negotiated with Congress to alleviate the deepening financial crisis. Australian stocks gained as Finance Minister Lindsay Tanner said the government may establish a fund to lend directly to companies should foreign banks fail to roll over up to A$75 billion ($49.3 billion) in loans.

Weak economic data in Asia may cap the Australian dollar’s gains today, Capruso said. China reported the slowest economic growth in seven years for the fourth quarter and South Korea announced the biggest drop in its gross domestic since the Asian financial crisis a decade ago.

China, Australia’s biggest trading partner, said its economy expanded 6.8 percent from a year earlier. South Korea announced a 5.6 percent drop in GDP from the third quarter, more than twice the decline forecast by economists in a Bloomberg News survey.

‘Gloomy’ Asian Data

“All these gloomy Asian growth numbers come as the April deadline is looming for the settlement of the annual contract price negotiations for Australia’s three key bulk commodity exports,” wrote Sydney-based Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney in a note today. “Where the contracts ultimately settle relative to consensus will determine the risks surrounding our 55 U.S. cent target for the Australian dollar by mid-2009.”

The Australian currency has declined 23 percent against the greenback over the past 12 months and New Zealand’s dollar has fallen 29 percent as a global recession caused commodities prices to tumble. Raw materials account for more than half of the two nations’ exports.

New Zealand’s manufacturing industry shrank for the eighth month in December, Bank of New Zealand Ltd. and Business New Zealand said in Wellington today. Credit and debit cards spending dropped 0.5 percent from November, a Statistics New Zealand report showed.

Australian government bonds declined for the second day with the yield on the 10-year note rising 12 basis points, or 0.12 percentage point, to 4.191 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 1.007, or A$10.07 per A$1,000 face amount, to 108.661.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 3.61 percent from 3.6 yesterday.

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