By Candice Zachariahs May 7 (Bloomberg) -- The Australian dollar rose on speculation investors bought the currency after its drop to a three-month low and before a report forecast to show the U.S. economy last month added the most jobs in three years. The so-called Aussie dollar gained versus 14 of its 16 most-traded counterparts on prospects policy makers from the Group of Seven nations will act to stem contagion from Greece’s crisis. It climbed against the yen after the 14-day relative strength index slid below the 30 threshold that indicates a currency may be poised to rise after falling too fast. New Zealand’s currency advanced against Japan’s as traders bet the nation’s central bank will raise interest rates in June. “The market is expecting at a minimum a commitment to restore stability from the G-7 and the announcement of any new measure would boost risk appetite significantly,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-largest lender. “There are enough people out there not ready to panic yet.” Australia’s currency climbed to 88.79 U.S. cents as of 4 p.m. in Sydney from 88.51 in New York yesterday, when it touched 87.16, the least since Feb. 10. The so-called Aussie rose 2 percent to 81.82 yen after sliding 5.7 percent yesterday. New Zealand’s dollar gained 1.7 percent to 65.21 yen, paring yesterday’s 4.3 percent decline. It bought 70.95 U.S. cents from 71.06 yesterday, when it fell 0.9 percent. Demand for the Aussie also increased before a government report today forecast to show the U.S. economy added jobs in April for a second month. U.S. Payrolls U.S. payrolls rose by 190,000, the most since March 2007, after increasing by 162,000 in March, according to the median forecast of economists surveyed by Bloomberg News. “We’ll see some real money buyers of Aussie dollars come in to cover their positions, supporting the currency,” said Derek Mumford, a Sydney-based senior consultant at HiFX, a foreign-exchange risk management firm. “Non-farm payrolls if they’re very strong could see some bargain hunting in equities,” boosting demand higher-yielding assets, he said. The Reserve Bank of Australia boosted forecasts for domestic growth and inflation today in its quarterly statement on monetary policy. Australia’s currency still traded within 2 U.S. cents of its weakest since February against the greenback as the central bank said “fiscal problems in Europe could intensify, prompting a retreat from risk-taking by investors and a sharp slowing in the world economy.” Greece Contagion “They’ve raised GDP and inflation forecasts but also lifted the downside risks,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The bottom line is that the RBA is going to be cautious about raising rates because there’s certainly the early start of contagion from Greek bond markets to other European bond markets.” The euro yesterday dropped to the weakest since March 2009 and has lost 4.7 percent this week. Australia’s dollar has fallen 4 percent and New Zealand’s currency 2.5 percent. “The Greece contagion will move through Europe worse than the black plague,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “We can’t avoid that kind of contagion since financial markets are inter-linked.” Australian government bonds surged for a fourth day as investors sought the safest assets. The yield on 10-year notes fell 10 basis points, or 0.10 percentage point, to 5.44 percent, according to data compiled by Bloomberg. Two-year bond yields slid 16 basis points, the most since at least January. Flight to Quality “The market is actually now pricing some chance of rate cuts over the course of this year” in Australia, said Sally Auld, an interest-rate strategist at JPMorgan Chase & Co. in Sydney. “Things will deteriorate in terms of financial market conditions and the flight to quality will persist” until European officials resolve the region’s debt issues, she said. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.53 percent. Swaps traders are betting on a 64 percent chance the Reserve Bank of New Zealand will increase rates in June, down from 98 percent yesterday, according to a Credit Suisse AG index. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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