Australian, N.Z. Dollars Advance on Outlook for Fed Rate Cut

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The Australian and New Zealand dollars rose on speculation the Federal Reserve will cut interest rates by at least half a percentage point tomorrow, increasing demand for higher-yielding assets.

The two currencies also extended last week’s gains as regional stocks climbed on optimism U.S. automakers will be rescued by the Bush administration, preventing bankruptcies that may deepen the global recession. Fed Chairman Ben S. Bernanke will lower the benchmark rate for the seventh time this year to 0.5 percent, according to a Bloomberg News survey of economists.

“Interest rates in the U.S. continue to fall and are weighing on the U.S. dollar,” said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. “If the U.S. weakness continues, the Aussie could reach 68 cents over the next few days,” he said referring to the currency by its nickname.

Australia’s currency advanced 0.6 percent to 66.83 U.S. cents as of 4:19 p.m. in Sydney, from 66.44 cents late last week in New York. The currency rose 0.4 percent to 60.75 yen. New Zealand’s dollar gained 1 percent to 55.23 U.S. cents and 0.3 percent to 50.19 yen.

The Fed will “likely say that interest rates will remain low for a long time, which has the potential to trigger a fall in the U.S. dollar,” John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a note to clients today. The Australian dollar “looks solid” around between 64.90 and 65 cents, and could face selling pressure at 68 cents, he wrote.

From Bloomberg News.