Australian, New Zealand Dollars Advance on Commodities, Yield

By Ron Harui and Chris Young

Aug. 21 (Bloomberg) -- The Australian and New Zealand dollars gained on speculation their declines are overdone given demand for commodities and the countries' interest-rate advantage over the U.S. and Japan.

Australia's currency climbed for a second day as the yield premium of Australian two-year government bonds over similar- dated U.S. Treasuries widened to the most in two weeks. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials advanced for a third day, helping trim the drop in the Australian and New Zealand dollars to 10.7 percent and 6.6 percent respectively in the past month.

``We expect to see a bounce over the next month as the Australian dollar has fallen too far,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation's largest lender. ``Commodity prices will tend to support the Australian dollar.''

The Australian dollar rose to 87.27 U.S. cents as of 10:05 a.m. in Sydney from 86.90 cents late in Asia yesterday. It touched a 25-year high of 98.49 cents on July 16 before sliding to a six-month low of 85.93 cents on Aug. 13. It may appreciate to 87.50 cents today, Capurso said. The currency, called the Aussie, climbed to 95.78 yen from 95.66 yen.

The New Zealand's dollar advanced to 71.29 U.S. cents from 70.99 cents late in Asia yesterday. It fell from a six-week high of 77.60 cents on July 16 to 68.26 cents on Aug. 13, the lowest level in a year. The currency, known as the kiwi, strengthened to 78.22 yen from 78.16 yen.

Commodity Prices

The Australian and New Zealand dollars are the second and third-best performers among the 16 most-traded currencies in the past five days as commodity prices halted their slide.

Commodity prices influence the Australian and New Zealand dollars because raw materials account for 60 percent of Australia's exports, while sales of commodities including lumber make up 70 percent of New Zealand's overseas shipments.

``Given the speed and magnitude of the currency's descent over the past month, we look for the New Zealand dollar to consolidate near-term,'' Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note. The currency is trading at ``fair value'' given interest- rate spreads with the U.S. and commodity prices, she said.

The difference in yield between two-year Australian and U.S. government bonds widened to 3.56 percentage points this week, the most since Aug. 4. The yield advantage of 10-year New Zealand debt over like-dated Treasuries increased to 2.38 percentage points this week, the most since July 10.

Australian government bonds gained, pushing the yield on the 10-year note down 5 basis points, or 0.05 percentage point, to 5.80 percent. The price of the 5.25 percent security due in March 2019 rose 0.394, or A$3.94 per A$1,000 face amount, to 95.738.

New Zealand's government debt was little changed, with the benchmark 10-year yield at 6.18 percent and the three-year yield at 6.25 percent. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Chris Young in Sydney at cyoung12@bloomberg.net.