Australian, N.Z. Dollars Strengthen as Credit Markets Improve

By Garfield Reynolds

April 23 (Bloomberg) -- The Australian and New Zealand dollars advanced on speculation signs of a thaw in credit markets will revive investors’ appetite for risk.

The currencies reversed earlier declines against the U.S. dollar after Credit Suisse Group AG said it returned to profit in the first quarter. They weakened earlier as the International Monetary Fund said Australia’s and New Zealand’s economies will shrink in 2009 at the fastest pace in more than 20 years.

“We have started to see credit-market improvements and we have begun to see equity markets stabilizing,” said Sharada Selvanathan, a Hong Kong-based currency strategist at BNP Paribas SA, France’s largest bank. “Stabilizing conditions in Asia will support the Aussie and kiwi,” she said, referring to the currencies by their nicknames.

Australia’s dollar climbed to 70.88 U.S. cents as of 5:14 p.m. in Sydney, from 70.54 cents yesterday in New York, when it slid 0.9 percent. It gained to 69.43 yen from 69.14 yen. New Zealand’s currency rose to 55.95 U.S. cents from 55.53 cents, and advanced to 54.81 yen from 54.44 yen.

Australian banks’ funding costs are at the lowest in three weeks, according to a gauge of cash scarcity. The difference between the rate Australian banks charge each other for three- month loans and the overnight swap rate stood at 29 basis points today. The spread, a measure of cash scarcity, averaged 11 points in the five years before the credit crunch started in August 2007. A basis point is 0.01 percentage point.

Rate Cuts

Australia’s central bank Governor Glenn Stevens lowered the benchmark lending rate this month to a 49-year low of 3 percent, the same level set on March 12 by Alan Bollard, who heads the Reserve Bank of New Zealand. Bollard will reduce New Zealand’s benchmark to 2.5 percent at an April 30 central bank meeting, according to a Bloomberg News survey of economists.

Both currencies declined in early trading after the Standard & Poor’s 500 Index lost 0.8 percent yesterday when Morgan Stanley, the fifth-biggest U.S. bank by assets, posed a wider-than-estimated loss.

“There was a disappointing close last night for U.S. equities and commodities were a bit weaker so that sapped demand for the two currencies,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The Australian dollar has reached something of an intermediate top and will struggle to break above 72.50 U.S. cents in the short term.”

Government Bonds

Australian government bonds fell for a second day after Treasurer Wayne Swan said the government will increase spending to counter an “inevitable” recession.

“The deepening global recession will have severe consequences for the budget’s forecasts for economic growth, unemployment and revenue, which will be substantially worse than reported in February,” Swan said in a statement from Canberra.

The yield on Australia’s benchmark 10-year bond rose three basis points to 4.49 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.281 or A$2.81 per A$1,000 face value, to 105.998. A basis point is 0.01 percentage point.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was unchanged at 3.59 percent.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net.

Last Updated: April 23, 2009 03:20 EDT