The Australian dollar fell against the yen on speculation the slowing global economy will deter the Reserve Bank from raising interest rates next month. The New Zealand dollar also weakened against Japan’s currency on concern stress tests of European banks will highlight the risk of additional loan losses, boosting demand for safer assets. Australia’s Bureau of Statistics will release consumer-price data for the second quarter next week, after quarterly inflation almost doubled in the first three months. “Until CPI comes out, it’s difficult to see where the market’s going to get the next thrust in terms of pushing higher yields in the money market and therefore the Aussie dollar,” said Michael Katz, a currency fund manager at Tallship Investments in Sydney. “There’s certainly enough downside risk to global activity and the RBA is unlikely to hike unless they’re facing some serious pressure with domestic CPI.” Australia’s dollar fell 0.4 percent to 77.06 yen as of 4:34 p.m. in Sydney. It traded at 88.37 U.S. cents from 88.39 cents yesterday in New York, after climbing to 88.71 cents on July 14, the strongest level since May 14. New Zealand’s dollar slid 0.2 percent to 62.60 yen and fetched 71.77 U.S. cents from 71.71. Minutes of the Reserve Bank of Australia’s July meeting released yesterday showed policy makers plan to use this week’s results of European bank stress tests and local inflation figures to help decide whether to raise borrowing costs when they meet Aug. 3 after keeping rates unchanged in June and July. Sell Recommendation Swaps traders are betting on a 26 percent chance that the RBA will increase rates, according to a Credit Suisse AG index. “The odds are the RBA won’t be hiking in August and the idea of the Aussie going back into the 90s would require a rate hike,” Katz said. He favors selling the Aussie above 88 U.S. cents, looking for it to slide toward less than 87 cents. The Australian dollar still traded near its strongest level in two months against the greenback on speculation the Federal Reserve will announce steps to spur lending to boost growth in the world’s largest economy. Fed Chairman Ben S. Bernanke will give his semiannual report on monetary policy to the Senate Banking Committee today. He will testify at the House Financial Services Committee on July 22. “The base looks pretty solid in both the Aussie and kiwi now at 88 cents and 71.30,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “Bernanke’s testimony is the other thing driving the U.S. dollar weakness with people expecting him to be dovish.” Extra Yield The extra yield investors get from Australia’s two-year government debt over similar-maturity U.S. Treasuries was at 4.04 percentage points after yesterday reaching its highest since 2008. Benchmark interest rates are 4.5 percent in Australia and 2.75 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Australian bond futures rose with the 10-year contract for September delivery at 94.815 on the Sydney Futures Exchange from 94.775 yesterday. The implied yield on the futures stood at 5.185 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.22 percent. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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