Australian Dollar Advance Against Yen

The Australian dollar gained the most in five days against the yen as equities rose, spurring investors to buy higher-yielding assets funded in Japan.

The currency pared yesterday's losses versus the yen as the largest drop in stock volatility in a month gave investors confidence to resume so-called carry trades. Australia's dollar may extend its 7.7 percent gain the past three months as Federal Reserve Chairman Ben S. Bernanke said the central bank may extend its emergency-loan program for securities firms into 2009.

The Australian dollar rose 0.8 percent, the most since July 2, to 102.53 yen at 10:38 a.m. in Sydney, from 101.72 yen late Asia yesterday. The currency bought 95.39 U.S. cents from 95.23 cents. It also was little changed at NZ$1.2664.

The Australian dollar gained as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, fell 10 percent to 23.15 yesterday, the biggest percentage drop since June 5.

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

The Australian dollar climbed against 12 of the 16 most- traded currencies as the MSCI Asia-Pacific Index of regional shares rose 1.1 percent after the Standard & Poor's 500 Index gained 1.7 percent. Crude oil for August delivery fell 3.8 percent yesterday to settle at $136.04 a barrel on the New York Mercantile Exchange, the biggest drop since March 31.

Australian Dollar Advance Against Yen, Bloomberg
7/8/2008 8:38:43 PM