Australian, N.Z. Dollars Strengthen as Stock Gains Boost Demand

By Ron Harui and Tracy Withers

Jan. 16 (Bloomberg) -- The Australian and New Zealand dollars strengthened as gains in regional stocks gave investors more confidence to purchase higher-yielding assets.

Australia’s currency climbed the most in almost two weeks versus the yen after the U.S. Senate yesterday voted to release the second half of a $700 billion financial-rescue package to President-elect Barack Obama. The Australian and New Zealand dollars also gained after technical charts signaled their more than 4 percent losses this week were excessive.

“Commodity-linked currencies are being aided by an uptick in risk appetite,” said Emmanuel Ng, an economist at Oversea- Chinese Banking Corp. in Singapore. “The simplest proxy would be stocks and the Nikkei 225 Stock Average is up.”

Australia’s dollar climbed 2 percent to 67.42 U.S. cents as of 4:50 p.m. in Sydney from 66.12 cents late in Asia yesterday. That was the biggest gain since Jan. 5. The currency rose 3.7 percent to 60.95 yen. It was still set for a 4.2 percent loss against the U.S. dollar from a week ago in New York, the most since Oct. 24.

New Zealand’s dollar gained 2.3 percent, the most since Dec. 18, to 54.70 U.S. cents from late in Asia yesterday. It was poised for a 7.6 percent weekly decline, the biggest since Oct. 24. The currency advanced 3.9 percent to 49.43 yen.

Japan’s Nikkei 225 rose 3 percent, recovering from its 4.4 percent slump yesterday, and the MSCI Asia-Pacific Index of regional shares advanced 2.1 percent.

Carry Trades

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., making the South-Pacific nations attractive destinations for so-called carry trades. In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher rates. The risk is currency market moves erase those profits.

Australia’s dollar also gained after its 14-day stochastic oscillator, a technical indicator that measures momentum, fell to 7.07 yesterday, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too quickly and is poised to rebound. The New Zealand dollar’s stochastic oscillator touched 4.27 yesterday.

“Some of these currencies are oversold, such as the Aussie and the kiwi,” Mike Moran, a senior currency strategist at Standard Chartered Bank in New York, said in an interview with Bloomberg Television. “There is some value in buying them for a couple of sessions.”

Weekly Losses

The two currencies still headed for the biggest weekly losses in almost three months on increasing concern the global slowdown is worsening.

“The Aussie dollar is down quite a bit” for the week, said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world’s largest interbank broker. “What is sparking that is renewed risk aversion and concerns over the global economy. The path of least resistance is down for the Aussie,” he said, referring to the currency by its nickname.

The Australian currency may decline to 65 cents and possibly as low as 63 cents in the next few weeks, Carr said.

Australia’s jobless rate rose to the highest level in almost two years last month as full-time employment fell, the statistics bureau said yesterday. New Zealand’s house prices dropped the most in December since 2005, a government valuation agency also said yesterday.

“It has been a week of carnage for the New Zealand dollar,” said Danica Hampton, a strategist at Bank of New Zealand Ltd. in Wellington. “The U.S. dollar strengthened as investors digested continued weakness in global equities.”

Financing Costs

Financing costs in Australia declined. The difference between the rate Australian banks charge each other for three- month loans and the overnight swap rate fell to 51.3 basis points today from 66.3 basis points yesterday. The gauge, a measure of cash scarcity, averaged 11 basis points in the five years before the credit crunch started in August 2007.

Australian government bonds fell. The yield on the 10-year note rose 12 basis points to 3.98 percent. It declined to 3.84 percent yesterday, the lowest since at least 1969 according to data compiled by Bloomberg. The two-year yield increased 12 basis points to 2.63 percent. A basis point equals 0.01 percentage point.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.83 percent from 3.73 percent yesterday.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net.