New Zealand’s dollar fell from near the highest level since October after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, cut its forecast for milk prices. The Australian dollar was little changed. Australia’s currency pared earlier gains after Japan, the nation’s biggest export market in the past year, said shipments abroad slumped 39.1 percent last month from a year earlier. The South Pacific nations’ currencies earlier reached the strongest this year after a gauge of U.S. consumer confidence jumped by the most since 2003, spurring demand for higher-yielding assets. “With the negative news from Fonterra in New Zealand, there may be an incentive for a bit of profit-taking and the currencies could dribble lower,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The currencies are at extremely high levels and we don’t think there’s a compelling reason to chase them higher today.” New Zealand’s dollar fell 0.3 percent to 62.27 U.S. cents as of 1:24 p.m. in Sydney from yesterday in New York, where it earlier climbed to 62.62 cents, the highest since Oct. 15. It rose 0.1 percent to 59.41 yen from 59.35. Australia’s currency traded at 78.60 U.S. cents from 78.62 yesterday, after earlier rising to 78.87, its highest since Oct. 2. It bought 75.01 yen from 74.71 yen. The Australian dollar will find support towards 77.50 U.S. cents and New Zealand’s will be bought around 61.50 U.S. cents, Hampton said. ‘Bad News’ Fonterra may pay its New Zealand suppliers 12 percent less next season due to weak dairy prices and recent gains in the local currency, the Auckland-based company said today. Farmers will probably receive NZ$4.55 ($2.83) for each kilogram of milk solids supplied in the year to May 31, 2010, the company said. “That’s bad news for the dairy sector in New Zealand and does suggest downside risks to the agricultural sector as a whole,” Hampton said. The so-called kiwi also weakened before the nation releases its budget tomorrow. Standard & Poor’s put a negative outlook on New Zealand’s AA+ foreign currency credit-rating in January, saying it wanted to see evidence of an improving fiscal position. It pared declines today after business confidence improved in May, with a net 3.8 percent of companies surveyed this month expecting sales and profits to increase over the next 12 months, ANZ National Bank Ltd. said in Wellington today. Australia’s currency has gained 23 percent against the U.S. dollar over the past three months as investors have bought higher-yielding assets amid a rally in equity markets and the greenback has weakened on speculation the U.S. may lose its AAA credit rating. Increase in Risk The U.S. dollar weakness is “a reflection of the fact that risk is back on the table but also of an increase in relative sovereign risk,” Dwyfor Evans, a strategist at State Street Global Markets, told reporters in Sydney today. The Australian dollar looks “overbought” at these levels and “there may be some pullback in the short-term,” he said. An Australian index of leading economic indicators rose in March for the first time in seven months, gaining 0.3 percent to 247.9 points from 247.2 in February, Westpac Banking Corp. and the Melbourne Institute said in Sydney today. Australia today sold A$699 million ($549 million) of bonds maturing March 2019 at a weighted average yield of 5.35 percent. The so-called bid-to-cover ratio at the auction was 2.8, down from 3.8 times at the previous sale on May 8. Australian government bonds declined. The yield on the benchmark 10-year notes rose 11 basis points, or 0.11 percentage point, to 5.33 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.81, or A$8.10 per A$1,000 face amount, to 99.43. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.57 percent from 3.59 yesterday.

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