By Candice Zachariahs Dec. 17 (Bloomberg) -- The Australian and New Zealand dollars surged to the highest in more than a month after the Federal Reserve reduced its target interest rate to as low as zero, prompting investors to buy higher-yielding assets. The currencies rose the most in almost seven weeks against the dollar as the Federal Open Markets Committee said it “will employ all available tools to promote the resumption of sustainable economic growth.” The Standard & Poor’s 500 Index rallied 2.2 percent after the Fed’s announcement. “The market will spend most of the next 24 hours absorbing the Fed’s decision which is clearly U.S. dollar-negative,” said Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney. The Australian and New Zealand dollars will benefit on “the interest-rate differential and as it looks like the Fed is pulling out all the stops to re-fire its economy, which is good for growth.” Australia’s currency touched 69.87 U.S. cents, the highest since Nov. 6, before trading at 69.34 U.S. cents as of 12:03 p.m. in Sydney from 67.04 cents late in Asia yesterday. The currency advanced 2.4 percent to 61.71 yen. New Zealand’s dollar gained 3.7 percent to 57.87 U.S. cents from 55.79 cents in Asia yesterday. It reached 57.99 cents, the strongest since Nov. 12 and bought 51.49 yen. The South Pacific nations’ currencies gained for a third day as the S&P 500 climbed to a five-week high. Citigroup Inc. jumped 11 percent and JPMorgan Chase & Co. climbed 13 percent after the central bank said it “stands ready to expand” purchases of mortgage-backed securities. The Australian dollar may strengthen toward 72 cents, a level last seen in October, while New Zealand’s currency may advance to 60 cents over the next few days, said Gibbs. Buy Australia’s Dollar Investors should buy Australia’s currency against Canada’s as it may rise 5 percent, wrote New York-based Adam Fazio and Toronto-based Shane Enright, analysts at CIBC World Markets in a research note dated Dec. 16. “The market has been consistently supported at ever higher levels, appearing to take on a new bullish bent,” they wrote. A break above 85 cents -- the 50 percent Fibonacci retracement from the Australian dollar’s July decline -- would open up 88.15 cents, the 61.8 percent retracement, CIBC said. Each Australian dollar bought 83.65 cents from 83.46 cents yesterday. Fibonacci analysis uses a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of one indicates a currency may move to the next. A failure suggests a trend may stall. Fibonacci points include 50 percent and 61.8 percent. Interest Rates The Australian dollar has dropped 21 percent against the dollar and 37 percent versus the yen this year as slumping commodities and a global recession prompted investors to dump the nation’s assets. New Zealand’s currency has fallen 25 percent and 40 percent against the dollar and yen, respectively. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.3 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits. Australian government bonds advanced. The yield on the 10- year note fell 9 basis points, or 0.09 percentage point, to 4.16 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.793, or A$7.93 per A$1,000 face amount, at 108.974. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.7 percent. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Source