New Zealand’s dollar strengthened for a second day versus the greenback after Standard & Poor’s said the nation’s ratings aren’t “immediately affected” by this week’s earthquake, the deadliest in 80 years. The New Zealand and Australian currencies also gained versus the yen as an advance in Asian stocks spurred demand for higher-yielding assets. The so-called Aussie rose for a third day against the dollar on speculation a commodities boom will prompt the Reserve Bank to increase interest rates. “Comments out from Standard and Poor’s that the quake is not immediately affecting New Zealand’s credit ratings helped the kiwi lift a little,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “There’s a short-covering rally with probably more to go.” Short-covering is where investors end a bet that an asset will decline. New Zealand’s dollar rose to 75.13 U.S. cents as of 4:19 p.m. in Sydney from 74.74 cents in New York yesterday, heading for a 1.4 percent decline this week. The currency gained 0.6 percent to 61.57 yen. Australia’s dollar advanced to $1.0133 from $1.0088, and climbed 0.5 percent to 83.03 yen. “It is still too early to assess the overall implications of the considerable disruption to the Canterbury region and the broader New Zealand economy,” S&P said in a statement today. “New Zealand’s financial system remains operational and will support an inevitable period of increased activity associated with the extensive reconstruction and repair work.” Rate Cut Bets A magnitude 6.3 earthquake struck the Pacific nation’s second-largest city, Christchurch, on Feb. 22, a disaster ANZ National Bank Ltd. said will cut gross domestic product by at least half a percentage point and may trigger a credit downgrade. The kiwi headed for its biggest weekly drop against the yen since the five days ended Nov. 26 as swaps traders priced as a certainty that the central bank will cut its benchmark by 25 basis points to 2.75 percent on March 10, according to a Credit Suisse AG index. Four of eight economists surveyed by Bloomberg News predict a cut of at least 25 points. A central bank spokesman yesterday declined to comment on speculation an unscheduled meeting would be held to consider a rate change. “From a growth and interest-rate point of view, the kiwi looks like it will remain under pressure,” said Tim Waterer, a foreign exchange dealer with CMC Markets in Sydney. Australia’s currency also slid the most since November versus the yen this week as global stocks declined on concern higher oil prices, spurred by the violence in Libya, will derail the economic recovery. Crude in New York retreated from the highest level in 29 months on assurances from the U.S., Saudi Arabia and the International Energy Agency that they can compensate for any disruption of Libyan shipments. Yield Gap The Aussie rose versus the greenback today as Credit Suisse AG indexes showed traders betting that Australia’s central bank will increase its key rate 30 basis points over 12 months, helping it maintain its yield premium over the U.S. where the Federal Reserve may raise by 28 basis points. “The Libyan situation and the resulting spike in the oil price is having a detrimental effect on the U.S. dollar plus it’s still not certain how long the quantitative-easing program will last,” Waterer said. “The Aussie and euro are strengthening against the dollar.” With U.S. unemployment at 9 percent and inflation at less than 1 percent, the Fed needs whatever policy leeway necessary for avoiding a deflationary trap, St. Louis Fed Bank president James Bullard said in an interview. That should include the flexibility to pursue so-called quantitative easing indefinitely, where the bank purchases government securities to hold down borrowing costs, he said. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Source