Australian Dollar Trades Near Two-Year High on Growth View, Fed Purchases

By Candice Zachariahs - Sep 14, 2010 4:22 PM PT


The Australian dollar traded near its strongest level in two years as a strengthening domestic economy and concern the Federal Reserve will expand efforts to keep down borrowing costs spurred demand for the currency.

New Zealand’s currency was near a seven-week high as speculation increased that U.S. policy makers will buy additional Treasury securities this year to help sustain growth as the recovery falters. Gains in the so-called kiwi were tempered on speculation the Reserve Bank of New Zealand will leave interest rates unchanged at a meeting tomorrow.

“Aussie can probably track a bit higher,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “The Australian economy is outperforming the rest and the market’s pricing in the prospect of quantitative easing in the U.S.”

The Australian dollar traded at 93.96 U.S. cents as of 9:22 a.m. in Sydney from 93.97 cents in New York yesterday, when it climbed to 94.58 cents, the highest level since July 2008. The currency was at 78.01 yen from 78.03 yesterday.

New Zealand’s dollar bought 73.28 cents from 73.43 cents yesterday when it advanced to 73.95, the strongest since July 27. It traded at 60.84 yen from 60.97.

Economists at Goldman Sachs & Co. expect the Fed to announce as early as November a program of asset purchases to support a weak economy. Treasury purchases may total about $1 trillion in another round of quantitative easing, said Jan Hatzius, chief U.S. economist at Goldman Sachs.

Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.