Monday, March 24, 2008

N.Z., Australian Dollars Advance on Demand for Higher Yields

By Tracy Withers

March 25 (Bloomberg) -- The New Zealand and Australian dollars rose as gains in U.S. stocks encouraged investors to buy higher-yielding assets funded by cheap loans in Japan.

The currencies climbed for a second day against the U.S. dollar and yen as JPMorgan Chase & Co. increased its bid for Bear Stearns Cos., boosting investors' confidence in credit markets. New Zealand's 8.25 percent benchmark interest rate and Australia's 7.25 percent make the currencies favorites for so- called carry trades, where funds borrowed in countries with lower rates are invested in places offering higher returns.

``Improving investor confidence helped reinvigorate demand for high-yielding currencies like the New Zealand dollar,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's dollar bought 79.89 U.S. cents at 11:37 a.m. in Wellington from 79.38 cents in late Asian trading yesterday. The currency rose 1.6 percent to 80.46 yen.

Australia's currency was at 90.86 U.S. cents from 90.50 cents yesterday. It jumped 1.3 percent to 91.50 yen.

The New Zealand dollar appreciated against 15 of the 16 most-actively traded currencies and Australia's dollar gained versus 12 after JPMorgan quadrupled its bid for Bear Stearns, once the biggest U.S. underwriter of mortgage bonds that almost collapsed before the Federal Reserve helped broker a takeover.

Optimism that the U.S. economy will recover from $200 billion of credit losses helped the Standard & Poor's 500 Index rise 1.5 percent. Sales of existing homes in the U.S. unexpectedly rose in February for the first increase in seven months, the National Association of Realtors said yesterday.

Carry Trades

Rising stocks typically make investors more comfortable entering carry trades, which are deemed risky because the currency's movements can erase the profit earned on the two rates of interest.

New Zealand's currency has gained 9.1 percent against the U.S. dollar the past six months and Australia's added 5.3 percent as investors are attracted to the nations' higher yields.

New Zealand's benchmark rate is 6 percentage points higher than the U.S. target, and 7.75 points more than Japan's.

New Zealand and Australian government bonds fell. The yield on New Zealand's 6 percent note due December 2017 rose 10 basis points, or 0.1 percentage point, to 6.52 percent, according to data compiled by Bloomberg. The price fell 0.69, or NZ$0.69 per NZ$1,000 face amount, to 96.32.

The yield on Australia's 10-year bond rose 17 basis points to 6.14 percent. The price of the 6 percent bond maturing in February 2017 fell 1.315, or A$13.15 per A$1,000 face amount, to 92.949. Bond yields move inversely to prices.

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