Dollar Gains as Investors Seek Refuge After Australia GDP Data

March 4 (Bloomberg) -- The dollar rose to the highest level in almost four months against the euro after a government report showed Australia’s economy unexpectedly shrank last quarter, boosting demand for the U.S. currency as a refuge.

The greenback climbed versus all 16 most-active currencies as Australia’s gross domestic product shrank 0.5 percent in the fourth quarter from the previous three months, compared with economists’ estimates for 0.2 percent growth. The Dollar Index rose to the strongest since April 2006 on speculation Federal Reserve officials today will reiterate the need to expand aid to the banking system.

“We’re going to go back to the theme of heightened risk aversion,” said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. “This favors the dollar.”

The dollar climbed to $1.2474 per euro as of 10:45 a.m. in Tokyo from $1.2561 late in New York yesterday. It reached $1.2457, the highest since Nov. 21. The greenback traded at 98.27 yen from 98.16 yen. The U.S. currency rose to $1.4009 from $1.4050 against the British pound and advanced to 1.1811 Swiss francs from 1.1760.

The yen strengthened to 122.74 per euro from 123.31. Japan’s currency rose 1 percent to 15.96708 versus South Korea’s won and advanced 1 percent to 61.97 against Australia’s dollar from late in New York yesterday.

The Dollar Index, which the ICE uses to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, rose as much as 0.8 percent to 89.624 as investors sought shelter in the world’s reserve currency.

Australia’s GDP ‘Sobering’

Australia’s fourth-quarter GDP figures are “sobering,” Treasurer Wayne Swan said today in Canberra after the report. The Reserve Bank of Australia kept the benchmark interest rate at 3.25 percent yesterday, after cutting rates by four percentage points since September.

The U.S. currency gained for a fourth day against the euro on speculation Dallas Fed President Richard Fisher and Atlanta Fed President Dennis Lockhart will today reiterate the need to increase financial assistance to the banking system.

Fed Chairman Ben S. Bernanke said yesterday in testimony prepared for the Senate Budget Committee that policy makers may have to expand aid to the banking system beyond the $700 billion already approved and take other measures even at the cost of soaring fiscal deficits.

“Bernanke is telling the public that the Fed and the government will act to support the banking system, which is a support for the U.S. dollar,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA. “Stronger initiatives by the U.S. will be the driving force of currency markets.”

Dallas Fed’s Fisher speaks at 8 a.m. in Fort Worth, Texas and Atlanta Fed’s Lockhart speaks at 12 p.m. in Miami, Florida.