Australian Dollar Near One-Month High; New Zealand Dollar Slips

By Candice Zachariahs

March 18 (Bloomberg) -- The Australian dollar traded near a one-month high as equities rallied, prompting investors to buy higher-yielding assets. New Zealand’s currency slipped.

Australia’s dollar touched the strongest in two months versus the yen as stronger-than-forecast home starts in the U.S. and increased spending by the Bank of Japan fueled optimism the global economy may be stabilizing.

“The Australian dollar looks pretty solid with equities performing well,” said Paul Milton, chief foreign-exchange dealer at Societe Generale Australia Ltd. in Sydney. “There seems to be firm selling interest around the 66.30 U.S. cents area, which might cap the Aussie in the short-term,” he said, using the currency’s nickname.

Australia’s dollar was at 66.20 U.S. cents as of 4:37 p.m. in Sydney from 66.19 cents late in New York yesterday. It earlier touched 66.30 cents, near the one-month high of 66.38 reached March 16. The currency was unchanged at 65.26 yen and earlier bought 65.50 yen, the most since Jan. 8.

New Zealand’s dollar declined 0.2 percent to 52.93 U.S. cents from 53.06 cents in New York. It bought 52.19 yen.

The Standard & Poor’s 500 index has rebounded 15 percent from a 12-year low on March 9, triggered by optimism that the worst of the financial crisis was over after Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said they were profitable in the first two months of the year.

The Bank of Japan will increase government bond purchases from banks to 1.8 trillion yen ($18.3 billion) each month, up from 1.4 trillion yen, it said in Tokyo today.

Australia’s dollar will likely trade between 65.50 U.S. cents and 66.50 cents today, said Nick Jonas, a currency trader at Suncorp-Metway Ltd. in Brisbane.

Kiwi Buffer, Rates

New Zealand’s dollar fell as Prime Minister John Key said the nation’s exchange rate “is acting as a buffer,” for the economy, which entered its fifth quarter of contraction. The so- called kiwi is the worst performer against the greenback among the 16 most traded-currencies in the past year, falling 34 percent. It dropped 35 percent versus the yen.

“Firms in some industries, including for example, sheep meat, venison, and even niche manufacturing, are getting better incomes as a result of the lower currency,” Key said.

Interest rates are 3.25 percent in Australia and 3 percent in New Zealand compared with 0.1 percent in Japan and as low as zero in the U.S., prompting investors to purchase the two nations’ assets with money borrowed in Japan or the U.S. The risk in such so-called carry trades is that exchange-rate moves can erase profits.

The Australian dollar is trading close to its 100-day moving average of 66.25 U.S. cents and could retest February highs on a sustained break above that level, Westpac Banking Corp. wrote in a research note yesterday.

Moving Average

“The Australian dollar has failed to make a sustained break above the 100-day moving average since the onset of the downtrend in the middle of last year,” wrote a team led by Sydney-based Robert Rennie, chief currency strategist at Westpac.

A move above that level “would pave the way for a test of the early February highs around the 68 U.S. cent level and potentially beyond to early January highs around the mid 72 cent level,” they wrote.

Australian government bonds were little changed with the yield on 10-year notes at 4.36 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.14, or A$1.40 per A$1,000 face amount, to 107.11.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.45 percent from 3.48 percent yesterday.

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