Australia Dollar Gains to 1-Week High After U.S. Stocks Rally

Australia Dollar Gains to 1-Week High After U.S. Stocks Rally
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By Candice Zachariahs

March 11 (Bloomberg) -- The Australian dollar gained to the highest in a week as U.S. stocks posted their biggest rally this year, raising speculation investors will buy riskier assets. New Zealand’s dollar also advanced.
The currencies traded near the strongest in three days against the yen after Citigroup Inc. said it is having its best quarter since 2007. Gains in the currencies may be limited before a meeting tomorrow where New Zealand’s central bank is forecast to lower interest rates to a record low to boost an economy that’s entered its fifth quarter in recession.
“Lowered risk aversion concerns, driven by equity gains, delivered steady buying demand,” for the South Pacific nations’ currencies, wrote David Croy, a strategist at ANZ Investment Bank in Wellington. New Zealand’s currency was “dragged reluctantly higher off the back of a stronger Australian dollar.”
Australia’s currency rose 0.9 percent to 64.64 U.S. cents as of 8:56 a.m. in Sydney from 64.06 cents late in Asia yesterday. It earlier touched 64.88 cents, the most since March 5. The currency advanced 1.2 percent to 63.82 yen.
New Zealand’s dollar gained 1.2 percent to 50.44 U.S. cents from 49.83 cents in Asia yesterday. It bought 49.80 yen from 49.06 yen.

Stocks Rally
The currencies climbed as the Standard and Poor’s 500 Index jumped 6.4 percent, the most since Nov. 24. Citigroup Chief Executive officer Vikram Pandit said the bank had been profitable through the first two months of 2009.
Technical analysts at Citigroup recommended raising the exit point on their trading recommendation to buy the Australian dollar at 63.50 U.S. cents with an initial target of 68.50 U.S. cents and then 72.70 cents. Investors should place a stop at 63.30 cents to “limit downside exposure,” wrote New York-based Tom Fitzpatrick and London-based Shyam Devani, technical analysts at Citigroup, in a research note yesterday.
Recent “gains for the Australian dollar-U.S. dollar have been rather quick and are likely to be tested by short-term pullbacks in risk sentiment,” they wrote.
Gains in the Australian and New Zealand dollars may also be limited as New Zealand’s central bank will cut the official cash rate to at least 3 percent from 3.5 percent, according to 13 economists surveyed by Bloomberg. Seven analysts estimate Governor Alan Bollard will lower the rate by 50 basis points, three expect a reduction of 75 basis points and three predict a 100 basis-point cut. A basis point is 0.01 percentage point.
The number of people employed in Australia probably fell by 20,000 and the unemployment rate likely climbed to 5 percent in February, the highest since April 2006, according to separate surveys. The government will report the jobless figures tomorrow.
Benchmark interest rates are 3.25 percent in Australia and 3.5 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.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net Last Updated: March 10, 2009 18:13 EDT

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