Australian Dollar Rises Against Yen as Stocks Spur Carry Trades

By Candice Zachariahs


July 9 (Bloomberg) -- The Australian dollar gained the most in five days against the yen as a rally in U.S. equities encouraged investors to buy higher-yielding assets funded in Japan.

The local dollar, a favorite of so-called carry trades, pared yesterday's losses against the yen as U.S. stocks rose the most in a month. The currency was little changed versus the U.S. dollar before the release of a government report that will probably show demand for housing in Australia declined in May.

``Today could bring further gains for carry trades if the strong U.S. equity finish spills over into Asia,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's largest bank, in a research note.

The Australian dollar rose 0.7 percent to 102.41 yen at 8:14 a.m. in Sydney, from 101.72 yen in late Asian trading yesterday. It bought 95.33 U.S. cents from 95.23 cents.

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.

Australia's dollar, known as the Aussie, is a target of the strategy because the nation's benchmark interest rate of 7.25 percent exceeds Japan's 0.5 percent and 2 percent in the U.S.

Stocks, Oil, Loans

The Aussie climbed against 10 of the 16 most-traded currencies as the Standard & Poor's 500 Index gained 1.7 percent, the most since June 5. Crude oil for August delivery fell 3.8 percent to settle at $136.04 a barrel on the New York Mercantile Exchange, the biggest drop since March 31.

Gains in the Australian dollar were limited before the report that will probably show the number of loans granted to build or buy homes or apartments fell 2 percent from May, the fourth monthly decline, according to the median estimate of 21 economists surveyed by Bloomberg News. The statistics bureau will release the report at 11:30 a.m. in Sydney.

Westpac Banking Corp. and the Melbourne Institute release a survey of consumer confidence today at 10:30 a.m. in Sydney. The gauge slumped to a 16-year low in June.

``Disappointing consumer confidence and home loans in Australia will, however, briefly frustrate the expected Aussie- yen rally,'' Strauss said in the note.

Australian government bonds gained for a fifth day. The yield on the 10-year bond fell 1 basis point, or 0.01 percentage point, to 6.34 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.086, or A$0.86 per A$1,000 face amount, to 91.667. Bond yields move inversely to prices.