The Australian dollar advanced and New Zealand’s currency traded near a one-week high on speculation the U.S. will outline its financial rescue plan next week and create an institution to take on banks’ toxic debt. The currencies earlier declined as commodities fell the most in two weeks and consumer prices in Australia posted the biggest drop in 11 years, clearing the way for further interest- rate cuts. New Zealand’s central bank will tomorrow reduce its benchmark rate to the lowest since it was introduced in March 1999, according to economists surveyed by Bloomberg News. “Markets are very quick to jump on board any signs of an improved outlook for the U.S. economy,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “A combination of a bad bank plan and a larger stimulus package has helped risk appetite.” Australia’s currency rose 0.2 percent to 66.74 U.S. cents as of 4:59 p.m. in Sydney from 66.61 cents late in Asia yesterday. The currency advanced 0.2 percent to 59.55 yen. New Zealand’s dollar was little changed at 53.06 U.S. cents from 53.08 in Asia yesterday, following a 2.2 percent gain in the last two days. It bought 47.34 yen from 47.36. The U.S. House is set to approve today President Barack Obama’s proposed $816 billion economic stimulus package. The Federal Deposit Insurance Corp. may manage a so-called bad bank that the administration is likely to set up, two people familiar with the matter said yesterday. Milk, Oil The currencies earlier declined as the UBS Bloomberg Constant Maturity Commodity index of 26 products slid 3.7 percent, the most since Jan. 12. Crude oil, Australia’s fourth most valuable raw material export, yesterday dropped more than $4 a barrel in New York, the most in almost three weeks. Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, cut its forecast milk price for the third time in four months and delayed paying a dividend, citing weakening demand and the reintroduction of subsidies in Europe. The 10,700 New Zealand farmers who own and supply the company will probably get NZ$5.10 ($2.70) for each kilogram of milk solids they produce in the year ending May 31, Fonterra said today. That is 35 percent less than the record NZ$7.90 they received last year and 15 percent less than a November estimate. Raw materials account for 60 percent of Australia’s exports, while sales of commodities including lumber make up 70 percent of New Zealand’s overseas shipments. Rate Cuts Australia’s consumer price index fell 0.3 percent from the third quarter, when it gained 1.2 percent, the Bureau of Statistics said in Sydney today. “This certainly gives the green light for the RBA to keep easing aggressively, we expect a 100 basis point reduction,” said Stephen Halmarick, co-head of economic and market analysis at Citigroup Inc. in Sydney. The Reserve Bank of Australia is expected to cut its benchmark of 4.25 percent by at least 0.75 percentage point on Feb. 3, according to a Credit Suisse Group index based on trading in overnight swaps, with an 83 percent chance of a bigger cut. The Australian dollar may fall to 58 U.S. cents, the lowest in six years, and the RBA may lower rates to 2 percent by the middle of the year, wrote Joshua Williamson, a Sydney-based economist for TD Securities Ltd, in a note today. New Lows The kiwi, as the currency is called, could break below recent lows this week as the Reserve Bank of New Zealand may cut borrowing costs 150 basis points, said Westpac’s Rennie. New Zealand’s dollar touched 51.69 U.S. cents on Jan. 21, the weakest since December 2002. Westpac is one of three institutions forecasting a 150 basis point cut. The median estimate of 13 economists surveyed by Bloomberg News is for a 1 percentage point reduction. “The risk there is that the market has been short kiwi and will take back some of those positions particularly if the RBNZ does 100 or less, given that’s already priced in,” said Callum Henderson, head of global currency strategy at Standard Chartered Plc in Singapore. Higher rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits. Australian government bonds advanced for the first day in three with the yield on the 10-year note falling 13 basis points, or 0.13 percentage point, to 4.06 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 1.135, or A$11.35 per A$1,000 face amount, to 109.819. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.51 percent from 3.49 yesterday.

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