Aussie Climbs to Two-Week High as Spain Bailout Bets Boost Risk

The Australian dollar climbed to its highest level in two weeks and government bonds fell as speculation Spain is closer to requesting a sovereign bailout spurred appetite for riskier assets.

New Zealand’s currency rebounded from the biggest drop in two weeks after Spain yesterday retained its investment-grade credit rating from Moody’s Investors Service, easing concern that the Europe’s debt crisis will worsen. Demand for the so-called Aussie and kiwi was also supported as Asian stocks joined a global rally amid signs the U.S. economy is gaining momentum.

The Australian currency rose 0.4 percent to $1.0315 as of 5:47 p.m. in Sydney. It earlier touched $1.0324, the strongest since Oct. 2. The Aussie gained 0.2 percent to 81.20 yen. The New Zealand dollar climbed 0.4 percent to 81.77 U.S. cents, after dropping 0.5 percent to 81.41 yesterday. It rose 0.2 percent to 64.38 yen.

“There certainly has been a lot of smoke around a Spanish bailout deal in recent trading sessions and I think there is a rising sense that that is coming soon,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “That probably means we take the pressure off Aussie in the short term.”

The MSCI Asia Pacific Index of shares advanced 1 percent after the Standard & Poor’s 500 Index of U.S. stocks added 1 percent yesterday and the Stoxx Europe 600 Index gained 1.3 percent.

Volatility, Bonds

Three-month implied volatility on the Australian dollar fell to 8.645 percent, the lowest since July 27, 2007.

Australian bonds declined, pushing the yield on 10-year debt up by nine basis points, or 0.09 percentage point, to 3.12 percent. It earlier reached 3.16 percent, the highest since Sept. 25.

A sale of benchmark 10-year securities today drew bids for 5.02 times the amount of notes offered, the highest since at least 2009, according to data compiled by Bloomberg.

Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said yesterday.

The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. European Union leaders will hold a summit in Brussels on Oct. 18-19.

Spain Rating

Moody’s said it would keep Spain’s rating at Baa3 as it concluded a review of the country’s credit score that it initiated in June, according to a statement from the New York-based company yesterday. It assigned a negative outlook to the ranking.

Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as below investment grade. Standard & Poor’s has a negative outlook on its BBB- rating, one step above junk, and Fitch Ratings has Spain at BBB, the second lowest investment-grade score.

“There had been some rumors in the market that a potential downgrade of Spain was possible,” said Westpac’s Rennie. “So the confirmation that we got from Moody’s is a positive.”

In the U.S., the number of dwellings builders began work on in September probably increased, according to a Bloomberg News survey before the Commerce Department releases a report today on housing. Starts may have climbed to an annual rate of 770,000, up 2.7 percent from August. A report yesterday showed industrial production increased a more-than-forecast 0.4 percent last month, partially reversing the previous month’s 1.4 percent slump.

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