Bloomberg News

Australian, N.Z. Dollars Hold Two-Day Rally Before ECB Meeting

October 05, 2011

Oct. 6 (Bloomberg) -- The Australian and New Zealand dollars held a two-day rally versus the U.S. currency before the European Central Bank holds a meeting today amid optimism Europe’s leaders are discussing a plan to recapitalize lenders.

Demand for both South Pacific currencies was boosted as futures signaled Asian equities will extend a worldwide rally in stocks, increasing demand for higher-yielding assets. German Chancellor Angela Merkel said yesterday Europe’s rescue fund will only be used as a last resort to save banks, and investors may have to take deeper losses as part of a Greek rescue.

“The crazy jigsaw that is the European debt debacle is starting to see a plan bubbling around in the background and that should be positive for risk,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “Hopefully we’ll see some further measures from the ECB and that should be good for the euro and also help the Aussie push upward.”

Australia’s dollar traded at 96.40 U.S. cents at 9:24 a.m. in Sydney from 96.59 in New York yesterday, when it rose 0.9 percent. The currency fetched 74.07 yen from 74.18 yen. New Zealand’s dollar bought 76.60 cents after yesterday advancing 0.8 percent to 76.63 cents. It traded at 58.85 yen from 58.84.

The Thomson Reuters/Jefferies CRB Index of raw materials rose 1.9 percent yesterday, ending three days of declines, and the Standard & Poor’s 500 Index climbed 1.8 percent. Raw materials account for the majority of exports from Australia and New Zealand.

Benchmark interest rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

--Editors: Nate Hosoda, Benjamin Purvis

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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