Australian, N.Z. Dollars Rise

The Australian dollar climbed from its weakest level in 11 months and the New Zealand dollar rose from near a two-week low as stocks advanced, giving investors more confidence to buy higher-yielding assets.

The two currencies also snapped two days of losses versus the yen as analysts said Fannie Mae and Freddie Mac have enough capital to last the year, prompting funds to return to so-called carry trades. The yield advantage of 10-year New Zealand government bonds over similar-maturity Japanese debt widened to 4.63 percentage points from 4.59 percentage points at the end of last month.

Australia's dollar advanced 0.7 percent to 85.74 U.S. cents as of 10:28 a.m. in Sydney, from 85.15 cents late in Asia yesterday when it reached 84.94 cents, the lowest since Sept. 20. The currency climbed 0.2 percent to 93.76 yen.

New Zealand's dollar gained 1.1 percent to 69.84 U.S. cents from 69.06 cents late in Asia yesterday when it touched 68.99 cents, the weakest since Aug. 13. The currency strengthened 0.7 percent to 76.39 yen.

Benchmark interest rates are 7.25 percent in Australia and 8 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the South Pacific nations popular targets for carry trades.

In carry trades, 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.

The New Zealand dollar was the best performer of the 16 most-traded currencies against the yen today as U.S. stocks rebounded from the largest drop in a month. The Standard & Poor's 500 Index strengthened 0.4 percent yesterday and the Dow Jones Industrial Average increased 0.2 percent.

The New Zealand dollar also gained before an ANZ National Bank Ltd. survey today that will probably show business confidence improved in August, Hampton said.

The ANZ National Bank survey showed last month that companies were pessimistic about their sales for a fifth month in July, adding to signs the economy is in a recession.

Australian, N.Z. Dollars Rise, Bloomberg
8/26/2008 6:40:46 PM