Australia’s dollar climbed for a second day against the yen as signs of rising prices in the economy added to prospects that the Reserve Bank will raise interest rates rather than considering cuts this year. The so-called Aussie headed for a weekly advance versus the U.S. and Japanese currencies after data showed import prices increased by more than economists forecast, preceding a report next week that may show inflation accelerated to a more than two-year high. New Zealand’s dollar climbed for a second day against the yen as gains in stocks and optimism that European leaders will contain the region’s debt crisis boosted demand for higher-yielding assets. “I’m very bullish on the Aussie,” said Richard Grace, chief currency strategist and head of international economics in Sydney at Commonwealth Bank of Australia. The inflation report is “going to remove some of these mispricings, in my view, on interest-rate cuts in Australia.” Australia’s dollar rose to 85.24 yen at 4:15 p.m. in Sydney from 84.89 yen yesterday in New York, extending gains this week to 1.1 percent. New Zealand’s currency climbed 0.4 percent to 67.83 yen and was set for a 1.4 percent gain since July 15. The Aussie was little changed at $1.0842 and was poised to gain 1.8 percent this week. The kiwi dollar slipped 0.1 percent to 86.26 U.S. cents, and is set for a five-day gain of 2.1 percent. The MSCI Asia Pacific Index of regional shares advanced 1.1 percent. The Standard & Poor’s 500 Index gained 1.4 percent in New York yesterday after European officials eased the terms of loans for cash-strapped nations and expanded aid for Greece. Rate Outlook Australia’s import prices increased 0.8 percent in the second quarter from the previous three months, the Bureau of Statistics said. Economists surveyed by Bloomberg News forecast a 1.1 percent drop. Export prices rose 6 percent. Consumer prices increased 3.4 percent in the second quarter from a year earlier, the most since December 2008, according to economist estimates compiled by Bloomberg. The report is due July 27. The market is “too far in terms of the expectations for RBA cuts,” said Todd Elmer, head of Group-of-10 currency strategy for Asia ex-Japan at Citigroup Inc. in Singapore. “We think that the next move is actually going to be a hike, not a cut.” ‘Overvalued’ Kiwi The New Zealand dollar touched a record high of 86.43 U.S. cents yesterday. Traders are betting the Reserve Bank of New Zealand will raise its key rate by 94 basis points in the next 12 months, the most since Nov. 4, according to a Credit Suisse Group AG index based on swaps. A separate index is signaling 38 basis points of cuts by Australia in the next year, down from 55 points on July 18. New Zealand’s consumer prices increased 5.3 percent in the second quarter from a year earlier, the most since 1990, a government report showed this week. The RBNZ will hold a policy meeting on July 28. “The reason the kiwi has been appreciating was because of the stronger data flow out of New Zealand and that’s boosted interest-rate expectations,” said Citigroup’s Elmer. “But I think that phenomenon has more or less run its course.” Benchmark rates are 4.75 percent in Australia and 2.5 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 so-called kiwi’s 14-day stochastic oscillator against the U.S. dollar was 98 today, above the 80 threshold that indicates to some traders an asset’s price has risen too quickly and is poised to reverse course. “I can’t recommend taking a long position on the kiwi because it’s overvalued,” said Keiji Matsumoto, a currency strategist at SMBC Nikko Securities Inc. in Tokyo. A long position is a bet that an asset’s price will increase. To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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