The Australian dollar traded just short of parity with the U.S. currency, near its highest since exchange controls ended in 1983, on prospects further monetary easing by the Federal Reserve will debase the greenback. New Zealand’s currency was near its strongest in more than two years as the premium the nation’s three-year bonds offer over similar maturity Treasuries climbed to the highest since December. The Fed is expected to announce the next round of quantitative easing after its two-day meeting ends today, involving purchases of at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News. “Anything less than that and you may see a knee-jerk sell- off of the Aussie and a U.S. dollar rally,” said Tim Kelleher, vice-president of institutional banking and markets at Commonwealth Bank of Australia in Auckland. “The risk is we’ll see a little profit-taking ahead of the Fed.” Australia’s currency bought 99.79 U.S. cents as of 4:41 p.m. in Sydney from 99.95 cents in New York yesterday when it touched $1.0024. The currency traded at 80.46 yen from 80.57. New Zealand’s dollar fetched 77.23 U.S. cents from 77.15 yesterday when it reached 77.42 cents, the most since July 2008. It bought 62.27 yen from 62.20. Australia’s dollar will likely find buyers near 99.75 U.S. cents while New Zealand’s currency will be supported at 76.90 cents, Kelleher said. Building Approvals Demand for the Aussie weakened after the Bureau of Statistics said today home-building approvals fell 6.6 percent in September from a month earlier, compared to the median economist forecast for no change in a Bloomberg News survey. The currency surged yesterday after the central bank unexpectedly raised rates and said “the risk of inflation rising again over the medium term remains.” Benchmark interest rates are 4.75 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. The Federal Open Market Committee is scheduled to release its policy statement at about 2:15 p.m. in Washington today. The Bank of Japan follows with a meeting on Nov. 4-5. It will take “a significant disappointment” from the Fed to weaken the Australian dollar below 98.50 U.S. cents, said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. Markets also have “too little risk of further hikes priced in the curve” in Australia, he said. Export Prices The Reserve Bank of Australia will increase its key rate by 33 basis points over the next year, according to a Credit Suisse AG index based on swaps trading. RBS predicts the cash rate will be 6 percent by the end of 2011. The Aussie will likely trade between 98.50 U.S. cents and $1.025, Gibbs said. New Zealand’s currency was bolstered after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole milk powder auction prices rose for the first time in six weeks on strong demand from China and emerging economies. Powder for January delivery gained 0.9 percent from two weeks earlier, according to a trade-weighted price index calculated after its latest GlobalDairyTrade auction. Central bank Governor Alan Bollard said Oct. 28 that high export prices along with reconstruction in earthquake-hit areas of the nation were likely to offset weaker consumer spending. Traders have since increased bets on rate increases in New Zealand to 79 basis points over a year from 68 basis points that day, according to a Credit Suisse index. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.94 percent from 3.98 yesterday. 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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