Australia Dollar Rises on Increased Confidence in Global Growth

Sept. 12 -- The Australian dollar rose to the highest in almost a month as signs global economic growth will be sustained gave investors confidence to buy the country's higher-yielding assets.

The currency gained for a second day after U.S. stocks rallied the most this month on evidence consumers are weathering an economic slowdown stemming from losses in subprime mortgages. Australia's dollar was also boosted as metals prices increased on demand from China. Exports of raw materials add about 14 percent to the country's economic growth.

``The Australian dollar has a bit of positive momentum,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``The view at the moment is that global growth will hold together with the strong equity market and strong metals.''

The Australian dollar advanced 0.7 percent to 83.28 U.S. cents at 11:15 a.m. in Sydney from 82.68 cents late in Asia yesterday, and may reach 84 cents today, Gibbs said.

The local dollar climbed against 15 of its 16 most-active currencies from yesterday, rising the most versus the yen to buy 95.11 from 93.86 yen. Only New Zealand's dollar, another so- called commodity currency, gained by more.

Gibbs said Australia's dollar had also been supported by a weaker U.S. dollar, which has fallen against 12 of its 16 most traded counterparts this month as investors have raised bets the Federal Reserve will cut interest rates.

Stocks, Metals

Australia's dollar benefited after the Standard & Poor's 500 Index added 1.4 percent in New York yesterday, as General Motors Corp. said demand is strong enough to charge more for cars. The region's stocks followed, with the Morgan Stanley Capital International Asia-Pacific Index of shares advancing 0.6 percent. Australian shares gained for a second day.

The London Metal Exchange Index, which tracks futures contracts of six metals including copper and aluminum, strengthened 3.2 percent yesterday, the biggest jump since April. Australia's dollar has increased more than 50 percent over the past five years, as the LME index more than tripled.

The Reserve Bank of Australia last week kept its interest- rate at an 11-year high of 6.5 percent. That compares with the 5.25 percent U.S. cost of borrowing and Japan's benchmark rate of 0.5 percent, which is the lowest in the industrialized world.

Australia's government two-year benchmark bonds yield 2.32 percentage points more than similar-maturity Treasuries, close to the almost three-year high of 2.43 percentage points spread reached Sept. 7. The premium over Japan's two-year notes is 5.46 percentage points, after reaching an almost 5-month high 5.51 percentage points late last week.

The yield on the Australian two-year bond rose 2 basis points to 6.26 percent. The price of the 7.5 percent bond maturing in September 2009 fell 0.047, or A$0.47 per A$1,000 face amount, to 102.285. Bond yields move inversely to price and a basis point equals 0.01 percentage point.

By David McIntyre (Bloomberg)

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