By Candice Zachariahs
Feb. 6 (Bloomberg) -- The Australian dollar advanced for the first week in five as equities rose on reports that the U.S. will unveil its financial-recovery plan in three days. New Zealand’s currency also gained.
The currencies rose as a measure of shipping costs for commodities capped its longest stretch of gains since May 2007 and a gauge of raw material prices advanced for a third day in New York. Australia’s dollar pared gains after the central bank slashed its forecast for economic growth and said the currency remains sensitive to swings in investors’ risk appetite.
“Stabilization in the stock market will feed into support for the Aussie,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia. “The RBA revision shouldn’t come as too much of a surprise given what’s happened in the global economy over the past three months. The Aussie will go back up,” he said, using the currency’s nickname.
Australia’s currency has risen 2.2 percent this week from 63.76 U.S. cents late in New York on Jan. 30. It advanced 3 percent to 59.07 yen from 57.33 last week.
After the central bank’s revision the local dollar slipped as low as 64.86 cents from 64.99 cents right before the announcement. It traded at 65.18 cents at 1:11 p.m. in Sydney.
New Zealand’s dollar gained for the first week in four, rising 0.9 percent to 51.39 U.S. cents from 50.92 on Jan. 30. It bought 46.70 yen from 45.85, adding 1.9 percent.
Growth Revision
Gross domestic product will expand 0.25 percent in the 12 months through June, according to the Reserve Bank of Australia, which in November predicted growth of 1.5 percent for the same period. GDP will increase 0.5 percent through 2009 and 2.5 percent next year, the bank said today in Sydney.
Traders reduced bets that the central bank will lower interest rates by more than 50 basis points when it meets March 3, according to a Credit Suisse index based on swaps trading. The possibility of a 75 basis point cut shrank to 38 percent from a 76 percent chance yesterday, according to the index.
The bank slashed borrowing costs 4 percentage points since September to 3.25 percent, the lowest since 1964.
Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S. attract investors to the two nations’ assets.
New Zealand cut its benchmark 1.5 percentage points to a record 3.5 percent Jan. 29.
Weekly Advance
Demand for the Australian and New Zealand dollars increased as stocks gained on speculation U.S. Treasury Secretary Timothy Geithner will unveil the nation’s financial-recovery plan Feb. 9.
The U.S. rescue plan will add to packages announced in Australia and Japan this week. Prime Minister Kevin Rudd’s government said Feb. 3 it will spend A$42 billion ($27 billion) to prevent the nation entering a recession. The Bank of Japan said it will purchase 1 trillion yen ($11 billion) in shares through April 2010 to shore up capital at financial companies.
“The Australian dollar has benefited from the stabilization in risk appetite,” London-based Michael Hart and New York-based Todd Elmer, analysts at Citigroup Inc., wrote yesterday in a research note. “Since previous weakness ran ahead of the deterioration in underlying fundamentals it remains one of the best-positioned currencies.”
Commodities, Bonds
The UBS Bloomberg Constant Maturity Commodity index of 26 products strengthened and the Baltic Dry Index advanced for a 12th day. Gold, Australia’s third most-valuable raw material export, gained yesterday by the most this week and crude oil, the country’s fourth most-valuable, also rose.
Rising prices for commodities bolster the South Pacific currencies as raw materials account for 60 percent of Australia’s exports and 70 percent of New Zealand’s.
Australian government bonds fell for a fourth day with the yield on the 10-year note rising nine basis points, or 0.09 percentage point, to 4.45 percent, the highest since Dec. 15, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.725, or A$7.25 per A$1,000 face amount, to 106.408.
The yield on the three-year note due April 2012 climbed 13 basis points to 3.29 percent, the highest since Jan. 12.
Australia’s record bond sales kicked off with stronger investor appetite for the A$601 million in debt than at the nation’s previous auction.
Buyers bid for 2.6 times the April 2015 securities offered, compared with a so-called bid-to-cover ratio of 1.4 at the government’s previous sale on Jan. 21, when it issued bonds maturing in May 2021. Today’s debt was sold at a weighted average yield of 3.91 percent, the Australian Office of Financial Management said today.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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