N.Z., Australian Dollars Rise; Fed Measures Buoy Risk Appetite

The New Zealand and Australian dollars rose after the U.S. Federal Reserve said it will boost liquidity by making loans in exchange for debt, encouraging investors to return to higher-yielding currencies.

The local dollars surged the most in more than six weeks against the yen, as the plan to pump $200 billion into the financial system to avert a credit crunch spurred demand for so- called carry trades. The New Zealand and Australian currencies pared a loss this month against the U.S. dollar as investors were lured by the nations' interest rates of 8.25 percent and 7.25 percent respectively.

``Risk appetite had a shot in the arm from the liquidity measures,'' said Michael Gordon, currency strategist at Westpac Banking Corp. in Wellington. ``It's a positive move for riskier currencies like the'' New Zealand and Australian dollars.

New Zealand's dollar, also known as the kiwi, bought 80.38 U.S. cents at 6:42 p.m. in Wellington, from 79.88 cents in late Asian trading yesterday. The currency surged as much as 2.2 percent to 83.30 yen before trading at 82.76.

The Australian dollar climbed to 93.17 U.S. cents from 92.37 cents late in Asia yesterday. It jumped as much as 2.2 percent to 96.31 yen before buying 95.92.

The Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to $45 billion into their banking systems. Australia's central bank yesterday injected A$1.7 billion ($1.58 billion) into the financial system via so- called repurchase agreements to encourage bank lending, almost double the daily average for this year.

Higher-Yielding Currencies

The Australian and New Zealand dollars are considered higher-yielding currencies because their nation's benchmark interest rates compare with a 3 percent rate in the U.S. and 0.5 percent in Japan.

The currencies also gained as U.S. stocks rallied the most in five years, giving investors' confidence to get funds in a country with low borrowing costs and invest in another with higher rates, earning the spread between the two.

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Dollar Declines on Speculation Fed Rescue Package Won't Succeed

The dollar fell against the euro and the yen on speculation the Federal Reserve's plan to provide funds to banks won't be enough to break the gridlock in money- market lending and stem credit losses.

``Read the need for such new measures as being a symptom of what ails the world and not a panacea for its problems,'' said David Simmonds, the London-based global head of currency research at Royal Bank of Scotland Plc, the world's fourth-biggest foreign-exchange trader. ``Stay short dollars.''

The U.S. currency also declined as traders wagered the Fed will cut rates by as much as three quarters of a percentage point to prevent a recession, while the European Central Bank keeps borrowing costs unchanged. The yen advanced against the dollar and the euro after a government report showed Japan's economy grew faster than forecast in the fourth quarter.

The dollar fell to $1.5469 per euro by 7:47 a.m. in New York, from $1.5338 yesterday, when it declined to $1.5495, the weakest level since the European single currency's debut in 1999. It slipped to 102.49 per yen from 103.42 yen. The euro was at 158.59 yen from 158.61.

The U.S. currency also dropped to $2.0168 against the U.K. pound from $2.0064 before Chancellor of the Exchequer Alistair Darling delivers his first budget statement to Parliament at noon in London today.

The yen climbed as a revised Japanese government report showed gross domestic product increased an annualized 3.5 percent in the three months through December, faster than the 2.3 percent median forecast of 27 economists surveyed by Bloomberg News.

European Industry

The euro extended its gains against the dollar after a European Union report showed industrial production in the region increased for the first time in three months in January. It rose 0.9 percent from January, more than twice the rate forecast by economists surveyed by Bloomberg.

The U.S. currency was also weighed down by speculation that Gulf central bankers will consider dropping the dollar peg when they meet next week. A Qatari official denied in a telephone interview that the meeting will discuss currency revaluation.

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