The Australian dollar dropped, reversing earlier gains, after a report showed the nation’s employers added fewer jobs than economists forecast, damping expectations the central bank will raise interest rates. The so-called Aussie fell to a four-month low against New Zealand’s dollar after the statistics bureau said the bigger nation added 7,800 jobs in May, while losing 22,000 full-time positions. That compared with the median estimate for a 25,000 increase in a Bloomberg News survey of 25 economists. The New Zealand dollar climbed toward a record after the central bank said commodity prices remain “very strong” and interest rates will rise within two years. "It’s still positive growth, slightly lower than the market had expected," said Tony Morriss, head of interest-rates research in Sydney at Australia & New Zealand Banking Group Ltd. "We now had two months of quite a large fall in full-time employment, and that’s kind of concerning.’’ The Aussie "was a little bit weaker on the headline, but this also provides confirmation perhaps the economy is going to be in a slightly softer period of growth." Australia’s dollar fell to $1.0570 as of 12:18 p.m. in Sydney from $1.0623 in New York yesterday. The currency was at 84.65 yen from 84.88 yen. The Aussie dropped to NZ$1.2884 from NZ$1.3031, after touching NZ$1.2865, the lowest since Jan. 31. New Zealand’s dollar rose to 82.03 U.S. cents from 81.50 cents. The currency reached a record 82.64 U.S. cents on May 31. It advanced 0.9 percent to 65.69 yen. Rate Expectations The Reserve Bank of Australia on June 7 held interest rates unchanged and said current policy settings are appropriate. The so-called kiwi gained against all 16 of its most-traded counterparts after the Reserve Bank of New Zealand left its benchmark Official Cash Rate unchanged at a record-low 2.5 percent today. The decision was predicted by all 15 economists surveyed by Bloomberg News. “A gradual increase in the OCR over the next two years will be required,” Governor Alan Bollard said in a statement accompanying the decision. “The pace and timing of increases will be guided by the speed of recovery.” Swaps traders are betting the central bank will increase the key rate by 61 basis points over 12 months, up from 56 basis points yesterday, a Credit Suisse Group AG index showed today. Signals December Increase “The central bank’s statement was hawkish and effectively allows for a December hike,” said Imre Speizer, a market strategist in Auckland at Westpac Banking Corp., Australia’s second-biggest lender. “It’s bullish for the kiwi dollar.” Australian bond futures rose for the first time in three days. Ten-year contracts for June delivery gained to 94.805 on the Sydney Futures Exchange from 94.750. The implied yield fell 5.5 basis points to 5.195 percent. A basis point is 0.01 percentage point. The yield on Australia’s 10-year note dropped 5.5 basis points to 5.202 percent, according to data compiled by Bloomberg. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose nine basis points to 3.4275 percent. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

Source