By Theresa Barraclough June 11 (Bloomberg) -- The Australian and New Zealand dollars fell, paring weekly gains, as investors’ risk appetite cooled on speculation China may takes steps to cool its economy after reports showed inflation accelerated. The so-called Aussie declined against the greenback after data today showed China’s inflation quickened to the fastest pace in 19 months, fanning concern the nation will raise interest rates. New Zealand’s dollar advanced yesterday by the most in two weeks after the Reserve Bank of New Zealand boosted borrowing costs from a record low. “Higher Chinese inflation may lead to earlier-than- expected rate hikes or revaluation of the currency,” said Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc in Tokyo. “This may lead to some risk aversion, so after building long positions on the Aussie and kiwi, the news may have caused some profit taking.” A long position is a bet a currency will strengthen. Australia’s dollar weakened 0.6 percent to 84.55 U.S. cents as of 4:02 p.m. in Sydney, from 85.02 cents yesterday in New York. The currency is poised for a 2.8 percent advance this week, the largest since January. The Aussie traded at 77.44 yen today from 75.67 yen on June 4. New Zealand’s dollar dropped to 68.23 U.S. cents today from 68.67 cents yesterday. It was up 1.8 percent since June 4, heading for the biggest weekly advance since Jan. 8. It bought 62.49 yen from 61.64 yen at the end of last week. China’s consumer prices rose 3.1 percent from a year earlier, the statistics bureau said in Beijing. That was more than the median 3 percent estimate in a Bloomberg News survey of 32 economists and April’s 2.8 percent gain. Weekly Gain Reports yesterday showed Chinese exports jumped 49 percent in May from a year earlier, Australian employers added workers for a third straight month and Japan’s economy expanded more than initially estimated. Investor sentiment was buoyed this week on “better fundamental news out of Asia with the Reserve Bank of New Zealand hiking, no downward revision of Japan’s GDP, super-sized Chinese export growth and Australian labor market report,” said David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne. The kiwi dollar will appreciate to 71 U.S. cents by the end of September, according to the median estimate of economists and analysts in a Bloomberg News survey. Further Tightening New Zealand’s central bank will increase its key rate by as much as 1.5 percentage points over the next 12 months, while the Reserve Bank of Australia will raise its benchmark by about 25 basis points, according to Credit Suisse AG indexes. A basis point is 0.01 percentage point. We “still see the RBNZ hiking by 25 basis points at every opportunity this year,” Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a note to clients. Benchmark interest rates in New Zealand and Australia, which has a key rate of 4.5 percent, offer a premium over the 0.1 percent level in Japan and the U.S. gauge of as low as zero, boosting demand for so-called carry trades. In such trades, investors get funds in a country with relatively low borrowing costs and invest in another nation with higher interest rates. “Underlying inflationary pressures are expected to increase,” RBNZ Governor Alan Bollard said in a statement released in Wellington after increasing the official cash rate to 2.75 percent from 2.5 percent yesterday. “Given the current low level of the cash rate, it is therefore appropriate to gradually remove policy stimulus.” New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, was at 4.33 percent from 4.29 at the beginning of the week. Australian government bonds dropped for a second day. The yield on the benchmark 10-year note rose four basis points to 5.39 percent, according to data compiled by Bloomberg. The 4.5 percent security due April 2020 lost 0.32, or A$3.20 per A$1,000 face amount, to 93.25. To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

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