Bloomberg, Aug 22, 2007 — The Australian and New Zealand dollars fall as increasing instability prevented traders from unsafe investments like buying assets in countries with advanced give ups financed by borrowing in Japan.
The decrease today widens the two currencies loss in the past month to at least 15 percent as compared to yen. This is the biggest decrease amongst the 16 liveliest currencies. The extending outcome of losses linked to the U.S. housing market almost doubled the currency instability, revealing carry-trade bets to greater risk.
Peter Pontikis, treasury strategist at Suncorp - Metway Ltd. in Brisbane, Australia said, â€œInstability has made people gun-shy of the carry trade”. Referring the currencies by their nicknames he said, â€œWith the supporting matters, neighboring banks and the lack of liquidity, people will be hesitant to help the Aussie and kiwi”.
The value of Australian dollar was 80.33 late in Asia the last day, where it fell down to 79.98 in Sydney today. The currency dropped to 91.41 yen from 91.97.
New Zealand’s dollar bought 69.12 U.S. cents from 69.81 cents yesterday. It fell to 79.01 yen from 79.91 in Asia the last day.
New Zealand’s equivalent measure was at 21 percent, from the average 10.3 percent for the last 12 months. Higher instability implies an increase in exchange-rate fluctuation risk.
The New Zealand Dollar still remains the top performer. Even after a 19 percent fall in the last month New Zealand dollar gained 6.7 percent and is still the top performer when compared to yen in the past 12 months. Australian currency has lost 15 percent in a month, dipping one-year gains to 3.1 percent.
Japan’s 0.5 percent overnight lending rate is the lowest of any major economy. New Zealand’s central bank raised borrowing costs four times. It has increased to 8.25 percent this year and the Reserve Bank of Australia increased rates on august 8 to 6.5 percent, making their currencies more likable to carry trades.Â
Jens Nordvig, senior currency strategist at Goldman Sachs & Co. in New York said, “we have seen a great point in instability and that’s made it very hard to re-enter carry trades”.
Both the currencies fell down the day before after U.S. Treasury Secretary Henry Paulson said instability will â€œtake timeâ€ to fall down. After then they had a meeting with Federal Reserve Chairman Ben S. Bernanke and Senate Banking Committee Chairman Christopher Dodd.
Raising of Bonds
The newspaper reported, the lack of liquidity in the bank-bill market may prompt the Reserve Bank to step in. The central bank was an onlooker at a meeting this week of association members who were called to discuss the issue, the Post said.
The day before, the government’s Debt Management Office increased the size of this week’s bond auction and presenting a bond of two more years, because of market demand for government securities.
Australian government bonds increased, with the yield on the level 10-year note declining 1 basis point to 5.85 percent. According to data collected by Bloomberg, New Zealand’s government debt fell, with the yield on the 10-year bond gaining 4 basis points to 6.23 percent.