BLBG : Australian, N.Z. Dollars Rise as U.S., China Equities Advance
Aug. 20 (Bloomberg) -- The Australian and New Zealand dollars rose versus the greenback and yen as gains in U.S. and Chinese equities boosted demand for higher-yielding assets.
Both currencies found buyers as the Shanghai Composite Index, tracking the bigger of China’s exchanges, recovered almost half of yesterday’s 4.3 percent slide. Australia’s dollar also climbed after U.S. equities gained on a rebound in oil, which is Australia’s fourth-most-valuable raw material export.
“The correlation between the Aussie dollar and U.S. equity market in particular has been very strong over the past few weeks, with our analysis showing a correlation as high as 95 percent,” said Amber Rabinov, an economist with Australia & New Zealand Banking Group Ltd. in Melbourne. “Currency markets may take their cue from Chinese equity markets again today.”
Australia’s currency climbed 0.2 percent to 82.99 U.S. cents as of 12:17 p.m. in Sydney from 82.87 cents in New York yesterday. The currency gained 0.5 percent to 78.33 yen.
New Zealand’s dollar was 0.2 percent higher at 67.54 U.S. cents from 67.40 and bought 63.73 yen from 63.41 yesterday.
Australia’s dollar may climb toward 83.30 cents and 78.40 yen today, Rabinov said.
Crude oil rose to a two-month high in New York after a government report showed that U.S. inventories declined the most in 15 months.
China Stocks
The Shanghai Composite Index advanced 2 percent today. The so-called Aussie dipped below 82 cents yesterday after the index fell 19.8 percent from its Aug. 4 high and near the 20 percent bear-market threshold.
Australian government bonds fell. The yield on 10-year notes added five basis points, or 0.05 percentage point, to 5.50 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.353, or A$3.53 per A$1,000 face amount, to 98.143.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.05 percent from 4.01 yesterday.
Benchmark interest rates are 3 percent in Australia and 2.5 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.
