The Australian dollar rose for the first time in four days as traders used its drop to the lowest level in two weeks to buy the currency amid speculation the South Pacific nation’s central bank will raise interest rates. New Zealand’s currency traded near its weakest in a month against the yen after Auckland-based Fonterra Cooperative Group Ltd. said whole milk powder auction prices fell to the lowest in more than two months. The Australian and New Zealand dollars slid yesterday on concern an unexpected interest-rate increase in China will slow growth in Asia’s biggest economy and damp demand for commodities. “The Aussie is vulnerable to these pushes lower, but it’s likely to be temporary in the absence of any further shocks to the market,” said Timothy Connors, head of foreign exchange at Custom House Global Foreign Exchange in Sydney. “Expectations are building for a rate rise in Australia in the coming three months.” Australia’s currency rose 0.7 percent to 97.57 U.S. cents as of 4 p.m. in Sydney from 96.86 cents in New York yesterday. It yesterday touched 96.62 cents, the least since Oct. 5, and reached $1.0004 on Oct. 15. The currency gained to 79.41 yen from 79.03 yen. New Zealand’s dollar fetched 74.70 U.S. cents from 74.41 yesterday. It bought 60.80 yen from 60.72. Reserve Bank of Australia policy makers said yesterday that their decision to leave interest rates unchanged earlier this month was “finely balanced.” Benchmark rates would likely have to rise “at some point,” the bank said in minutes to its Oct. 5 policy meeting released yesterday. Interest Rates Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. China’s central bank raised its benchmark one-year lending and deposit rates yesterday in an effort to curb lending and prevent asset-price bubbles. The nation is Australia’s largest trading partner and New Zealand’s second-biggest export market. The MSCI Asia Pacific index fell 0.5 percent, declining for a fourth day. The Standard & Poor’s 500 Index slid 1.6 percent yesterday. The Aussie recovered some of yesterday’s 2.1 percent drop as Asian exporters used declines in their domestic currencies to purchase them against the greenback, said Kurt Magnus, executive director of foreign-exchange sales at Nomura Australia Ltd. “The selling of dollars by Asian exporters has fed through into euro-dollar and that’s why we’ve had a bounce,” in Aussie, Magnus said. Investors will resume selling the Australian dollar, driving it toward 95.20 U.S. over the next two days, he said. ‘Buying Opportunity’ Declines in the currency toward that level may “provide a medium-term buying opportunity,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. The Australian dollar has gained 10 percent against the U.S. dollar over the past three months and has been the best performer among its 16 most-traded counterparts. New Zealand’s currency has advanced 4.2 percent. Gains in the kiwi are underpinned by rising commodity prices while soft demand for credit is slowing the nation’s economic recovery, Reserve Bank of New Zealand Governor Alan Bollard said today to a parliamentary committee. The governor last week said he is likely to increase the benchmark rate gradually from historically low levels to aid a “brittle” economic recovery. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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