Sydney, Feb. 25 (Bloomberg) -- The Australian dollar rose to its highest since June 2000, exceeding 60 U.S. cents for the first time in 2 1/2 years, as prices surged for the nation's primary products, which account for 60 percent of its exports. The Australian dollar rose as high as 60.64 U.S. cents in New York trading yesterday. It bought 60.56 U.S. cents at 4:51 p.m. in Sydney. The local dollar has risen almost 8 percent this year, making it the world's second-best performing currency out of 59 tracked by Bloomberg, as the risk of a U.S.-led war to disarm Iraq has driven investors from U.S. dollar assets.
``With war looking increasingly more likely in the Middle East, people are a bit wary of holding U.S. dollars and at the moment, the euro and the yen don't look much better,'' said Paul McNee, chief currency trader at Australia and New Zealand Banking Group Ltd. in Melbourne. ``It's looking pretty good'' for the Australian dollar, which may reach 62 U.S. cents in the next month, McNee said. The Australian dollar's gain is crimping profits at exporters such as BHP Billiton, the world's biggest miner, and Southcorp Ltd., Australia's largest winemaker. The currency may extend gains as investors who expect a war in Iraq shift money away from assets in the U.S., analysts said.
Exporters
Yesterday, BHP said costs at the company's mines and smelters rose by $65 million during the first half because of the rise in the Australian dollar. Melbourne-based BHP earns U.S. dollars for commodities such as iron ore and aluminum, and it pays wages in the local currency. Southcorp Ltd., Australia's biggest winemaker, said first- half profit slumped 97 percent in a year when Australia exported a record A$2.3 billion ($1.39 billion) of wine. ``The rising Australian dollar is not helping against the country's competitors,'' said Stephen Coffey, who helps manage A$600 million in equities, including Southcorp shares, at Challenger Portfolio Management Ltd.
Australia is the world's third-largest gold producer. The looming Iraq war and the U.S. dollar's decline has also helped boost prices for aluminum, nickel, copper and zinc, which are among the nation's top 15 commodity exports. The Australian dollar, the New Zealand dollar, the South African rand and the Canadian dollar may gain as commodity prices rise because of the reliance in those countries on raw materials for export earnings. Each of the currencies have risen by more than 5 percent this year.
Commodities Surge
``Commodity prices are rising'' as the U.S. dollar weakens, and that's boosting the currencies of commodity-exporting countries, said Greg McKenna, a market strategist at National Australia Bank Ltd. Gold for immediate delivery rose 0.5 percent to $359.35. The precious metal has gained almost 22 percent the past year as concern that the U.S. may lead an attack on Iraq boosts the asset's haven appeal. The price of crude oil for April delivery on the New York Mercantile Exchange is up 79 percent from a year ago.
The -Commodity Research Bureau Futures Price Index of 17 commodities rose 1.3 percent yesterday and is up more than 5 percent this year. Australian importers took advantage of the currency's 0.5 percent rise overnight and sold it earlier today, said McNee. It will likely trade between 60.25 U.S. cents and 60.60 U.S. cents, he said. Goldman Sachs Global Markets and Bank of America Corp. last week advised clients to hold the Australian and New Zealand dollars.
Yield Premium
``If you are looking to park your money, you want to park your money in liquid currencies, with a reasonable yield and where there's good depth in the market,'' such as Australia and New Zealand, McNee said. Australia's key overnight interest rate at 4.75 percent is 3.5 percentage points more than its U.S. counterpart. New Zealand's key lending rate is 5.75 percent. Standard & Poor's last week raised Australia's foreign currency credit rating one level to AAA, the top ranking, citing four budget surpluses in five years and falling foreign debt. Moody's Investors Service raised the nation's foreign currency credit rating to its top-ranked Aaa on Oct. 21. It's ``onward and upward'' for the Australian dollar, said David Mozina, head of G-10 foreign exchange strategy at Bank of America. The U.S. currency may extend its decline in coming weeks, investors and executives say, as waning consumer confidence and a possible war with Iraq stall economic recovery.
Bonds
Australian government bonds extended earlier gains on a report that North Korea test-fired a short-range missile into the Sea of Japan, traders said. The 6.5 percent bond maturing in May 2013 rose 0.467, or A$4.67 per A$1,000 face amount, to 110.925. Its yield closed down 6 basis points at 5.11 percent. A basis point is 0.01 percentage point. The yield on the 7.5 percent bond maturing in July 2005 shed 8 basis points to 4.36 percent. ``There's been active buying of the currency'' and interest- rate sensitive securities from overseas investors, said Bill Bovingdon, who helps oversee A$4 billion in fixed-income assets at Deutsche Asset Management Ltd.
The Australian currency has also gained support from Japanese investors who bought it to purchase debt denominated in the currency. Japanese brokerages have sold more than A$6 billion of Australian dollar debt targeted at individual investors this year, according to Westpac Banking Corp. The government auctioned A$401 million of 6.25 percent bonds maturing in April 2015 at a weighted average yield of 5.225 percent. //www.quote.bloomberg.com