Australian Dollar Trades Near 2-Month High


The Australian dollar traded near a two-month high against the yen as rising commodity prices spurred investors to buy higher-yielding assets financed in Japan.

Australia's dollar ended two days of losses against the yen as traders increased bets the central bank will raise interest rates next month. Australia's dollar was the third-best performer among the 16 most-active currencies versus the yen as the yield advantage on two-year Australian bonds over Japanese debt widened to 5.74 percentage points from 5.71 percentage points on April 25.

The Australian dollar climbed to 97.83 yen at 9:47 a.m. in Sydney from 97.46 yen late in New York on April 25. It reached 98.43 yen on April 23, the highest since Feb. 29. The currency rose to 93.53 U.S. cents from 93.33 cents. It may strengthen to 98.50 yen and 94.20 cents today, Lee forecast.

The price of gold, Australia's third-most valuable export, advanced for a second day, gaining 0.3 percent. The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities rose 0.7 percent on April 25.

The benchmark interest rate is 7.25 percent in Australia, compared with 0.50 percent in Japan, making the South Pacific nation's currency a favorite for the carry trade.

In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits.


TradingEconomics.com, Bloomberg
4/27/2008 8:36:17 PM