Australian Dollar Advances to 8-Month High

The Australian dollar rose to an eight-month high against the yen on speculation the nation will retain its interest-rate advantage over the U.S. and Japan.

The local dollar, known as the Aussie, gained for a third day versus the yen after the difference in yield between two-year Australian and Japanese bonds widened to 5.85 percentage points, the most in a week. The Aussie snapped a three-day losing streak versus the U.S. dollar as traders trimmed bets the Reserve Bank of Australia will lower borrowing costs.

The Australian dollar climbed to 104.17 yen, the highest since Nov. 9, before trading at 104.13 yen at 12:06 p.m. in Sydney, from 103.75 yen late in New York on July 18. The currency rose to 97.52 U.S. cents from 97.03 cents in New York. It reached a 25-year high of 98.49 cents on July 16.

The benchmark interest rate is 7.25 percent in Australia, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the nation a popular destination for international investors seeking higher returns.

The Australian dollar had pared gains to 97.25 cents from 97.45 cents after the Bureau of Statistics said the producer price index advanced 1 percent in the second quarter. The median estimate in a Bloomberg survey of 20 economists was for a 1.6 percent increase. The index climbed 4.7 percent from a year earlier.

Australian Dollar Advances to 8-Month High, Bloomberg
7/20/2008 8:55:23 PM