By Candice Zachariahs June 1 (Bloomberg) -- Australia’s dollar approached an eight-month high as manufacturing in China, the nation’s biggest trading partner, expanded for a third month. New Zealand’s also climbed on signs commodity revenue will rise amid a recovery. Prices of raw materials, which account for more than 50 percent of Australian and New Zealand exports, climbed in May by the most since 1974 amid concern the largest-ever U.S. budget deficit will devalue the greenback. The so-called Aussie surged by a record last month before a central bank meeting tomorrow when economists estimate policy makers will keep interest rates at 3 percent, the most in the industrialized world. “The Chinese data gave the Australian dollar a bit of a leg up and equities have also turned higher,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney. “The underlying focus is still on selling U.S. dollars with the market focused on data that is negative for the U.S. dollar.” Australia’s currency rose as high as 80.74 U.S. cents, the most since Sept. 30, before trading at 80.47 cents as of 2:20 p.m. in Sydney, up 0.5 percent from 80.11 cents in New York on May 29. The currency gained 0.2 percent to 76.48 yen. New Zealand’s dollar gained to 64.38 U.S. cents, its strongest since Oct. 6, before trading at 64.23 U.S. cents from 64.05 cents in New York last week. It bought 61.04 yen from 61.03 yen. Asian equities advanced the most in almost a week and crude oil, Australia’s fourth most-valuable export, climbed to a seven-month high. Gold, the country’s third-biggest export earner, gained to the strongest level in three months. China Expanding China’s Purchasing Manager’s Index was at a seasonally adjusted 53.1 in May after registering 53.5 in April, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion. Loan growth, accelerating fixed-asset investment and rising retail sales have spurred confidence that Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus package is working. The Aussie dollar briefly pared gains after the Bureau of Statistics said Australian retail sales rose in April by less than some economists forecast, climbing 0.3 percent from March, when they increased 2.2 percent. Futures traders increased bets last week that the Australian dollar will gain against the U.S. currency, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 32,469 on May 26, compared with net longs of 29,295 a week earlier. Higher Rates, GDP The Reserve Bank of Australia will hold its benchmark rate unchanged at 3 percent, according to the median forecast of 19 economists surveyed by Bloomberg News. Higher interest 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. New Zealand’s cash rate is at 2.5 percent. “The Aussie will hover around the 80-cent mark with key economic data out in Australia this week,” said Charles Wiggins, corporate risk manager at Custom House Global Foreign Exchange in Sydney. “The 80.30-80.80 cent range is going to be tough to break, after which next major resistance is at 82 cents.” The currency will find buyers at 79.40 cents, he said. The economy probably shrank 0.2 percent in the first quarter, its second consecutive quarterly contraction, according to a Bloomberg News survey before the Australian statistics bureau reports the data in Sydney on June 3. Manufacturing, Earnings Australian business profits fell for a second quarter and manufacturing contracted in May, separate reports showed today. Company profits slipped 7.2 percent in the first quarter, a government report showed, and the performance of a manufacturing index rose to 37.5, the Australian Industry Group and PricewaterhouseCoopers said in a survey today. A reading below 50 signals manufacturing is shrinking. Australian government bonds slipped with the yield on 10- year notes adding six basis points, or 0.06 percentage point, to 5.34 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.46, or A$4.60 per A$1,000 face amount, to 99.31. A gauge of Australian inflation fell in May, pushing the annual rate below the central bank’s target range for the first time in four years. Consumer prices rose 1.5 percent from a year earlier, slowing from April’s 2.1 percent gain, according to an index compiled by TD Securities Ltd. and the Melbourne Institute released in Sydney today. New Zealand markets are closed today for the Queen’s Birthday holiday.

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