Australian Dollar Gains


The Australian dollar rose as speculation the U.S. economy will avoid a recession bolstered prices for commodities that are key to the nations' export earnings.

The currency gained for a second day against the U.S. dollar as the Reuters/Jefferies CRB Index of 19 raw materials climbed the most in three weeks on May 2 after a better-than- forecast jobs report raised optimism the U.S. economic slowdown won't worsen. Both currencies also advanced for a second day versus the yen as a rise in stocks spurred so-called carry trades.

Australia's dollar climbed to 93.77 U.S. cents as of 12:26 p.m. in Sydney from 93.47 cents late in New York on May 2. The currency rose as high as 98.86 yen, the highest since Feb. 29, before trading at 98.73 from 98.48 yen.

The Australian dollar was the best performer among the 16 most-traded currencies against the U.S. dollar on speculation the Reserve Bank of Australia will keep interest rates unchanged at a 12-year high tomorrow to curb inflation.

Consumer prices climbed at a record pace of 4.3 percent from a year earlier, according to a monthly index published by TD Securities Ltd. and the Melbourne Institute in Sydney today. Prices gained 0.5 percent from March, when they rose 0.4 percent.

The RBA raised interest rates in March for the fourth time in seven months after inflation surged above the 3 percent limit of its target range. The RBA will leave the overnight cash rate target at 7.25 percent, according to 24 of 25 economists surveyed by Bloomberg News. One forecasts a quarter-point increase.

The Australian currency is favorite for carry trades because the nation benchmark interest rate is 7.25 percent, compared with 0.5 percent in Japan.

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 two. The risk is that currency market moves can erase those profits.


TradingEconomics.com, Bloomberg
5/4/2008 8:44:18 PM