Tuesday, March 25, 2008

Australian, N.Z. Dollars Advance as Rate Advantage May Widen

By Ron Harui and Tracy Withers

March 26 (Bloomberg) -- The Australian and New Zealand dollars rose for a third day as speculation the nations' interest-rate advantage over the U.S. will widen boosted the appeal of their higher-yielding fixed-income assets.

The currencies climbed to the highest in almost a week as traders increased bets the Federal Reserve will cut its 2.25 percent target lending rate by as much as a half-percentage point next month. New Zealand's dollar may head for a seventh monthly gain, its longest since 1995, as a U.S. government report today will probably show purchases of new homes fell to a 13-year low in February.

``The Australian dollar has a strong backing from its economy,'' said Sue Trinh, a currency strategist in Sydney at RBC Capital Market, the global investment banking unit of Royal Bank of Canada. ``U.S. data is abysmal. The Fed faces a huge challenge in engineering a U.S. recovery,'' she said.

The Australian dollar advanced to 91.63 U.S. cents as of 11:01 a.m. in Sydney from 91.42 cents late in Asia yesterday. The currency traded at 91.68 yen from 91.89 yen. It will gain to 93 cents next quarter, Trinh said. Australia's dollar is poised for a quarterly gain as the central bank raised rates this month to an 11-year high of 7.25 percent.

The New Zealand dollar strengthened to 80.54 U.S. cents from 80.33 cents late in Asian trading yesterday. The currency bought 80.59 yen from 80.76 yen.

Second Quarterly Advance

New Zealand's dollar is set for a second quarterly advance as new U.S. home sales probably dropped to an annual pace of 578,000 in February, the fewest in three years, according to a Bloomberg News survey of economists. The Commerce Department releases the report at 10 a.m. in Washington.

A private report yesterday showed consumer expectations for the U.S. economy fell to the lowest since December 1973. Futures contracts on the Chicago Board of Trade show a 28 percent chance the Fed will trim its target rate by a half-percentage point to 1.75 percent on April 30, compared with a zero percent likelihood a month earlier.

New Zealand's official cash rate is 6 percentage points higher than the Fed's target, helping the nation's currency gain 8.5 percent against the U.S. dollar the past six months.

``It's hard to steer away from yields like ours,'' said Alex Sinton, a currency trader at ANZ National Bank Ltd. in Auckland. ``The kiwi found a lift from general U.S. dollar weakness,'' he said, referring to the currency by its nickname.

Consumer Confidence

Investors shrugged off a report today that New Zealand consumer confidence slumped to a 10-year low in the first quarter. The survey by Westpac Banking Corp. and McDermott Miller Ltd. showed consumer expectations for their own finances over the coming year fell to the lowest since 1992.

The slump in confidence adds to signs economic growth will slow this year, which may prompt Reserve Bank of New Zealand Governor Alan Bollard to cut the benchmark interest rate, now at a record high 8.25 percent.

Australian government bonds gained. The yield on the benchmark 10-year bond fell 6 basis points, or 0.06 percentage point, to 6.08 percent. The price of the 5 1/4 percent bond maturing in March 2019 rose 0.434, or A$4.34 per A$1,000 face amount, to 93.466.

New Zealand government bonds rose. The yield on the 6 percent note due December 2017 fell 7 basis points to 6.42 percent, according to data compiled by Bloomberg. The three-year yield dropped 4 basis points to 6.54 percent.

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