Australian Dollars held gain as stocks advance

Financeroll – The Australian and New Zealand dollars held a two day gain versus the U.S. currency as Asian stocks extended a worldwide rally, increasing demand for higher yielding assets.

Both South Pacific currencies were supported after German Chancellor Angela Merkel said yesterday she’s ready to discuss possible recapitalization of European banks at a European summit this month. The International Monetary Fund renewed its call for the European Central Bank to step up its response to the region’s debt crisis if it continues to threaten growth and destabilize financial markets.

Australia’s dollar traded at 96.78 U.S. cents at 5:49 p.m. in Sydney from 96.59 in New York yesterday, when it rose 0.9 percent. The currency fetched 74.26 yen from 74.17. New Zealand’s dollar bought 76.68 U.S. cents after advancing 0.8 percent to 76.62 yesterday. It was little changed at 58.84 yen.

The MSCI Asia Pacific Index of stocks rose 2.8 percent, snapping four days of declines. The Standard & Poor’s 500 Index climbed 1.8 percent yesterday while the Thomson Reuters/ Jefferies CRB Index of raw materials advanced 1.9 percent.

The German chancellor said she supports recapitalizing European banks if there is a joint assessment that the banks aren’t adequately capitalized and finance officials develop uniform criteria. The IMF said in its biannual regional economic outlook for Europe that a significant number of euro region banks should be strengthened as they lack sufficient capital buffers.

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.

The Aussie has dropped 3.3 percent in the past month. New Zealand’s currency has fallen 2.1 percent. The MSCI World Index of stocks has dropped 9.1 percent since Aug. 31 amid concerns that U.S. economic growth will slow and Europe’s debt crisis will worsen. Gains in the Australian and New Zealand dollars were limited before the U.S. Labor Department releases its employment report tomorrow.

U.S. employment climbed by 59,000 workers in September and the jobless rate was unchanged at 9.1 percent. Employment was unchanged in August, the report showed last month, compared with the median forecast for a 68,000 gain. Australia’s 10-year bond yield increased 10 basis points, or 0.1 percentage point, to 4.17 percent, rising for a second day. New Zealand’s two year swap rate, a fixed payment made to receive floating rates which is sensitive to interest rate expectations, gained two basis points to 3.05 percent. [BLB/FR]