The Australian and New Zealand dollars strengthened against the yen as Asian stocks reversed earlier losses and before a report that may signal U.S. economic improvement, boosting demand for higher-yielding assets. The so-called Aussie and kiwi advanced ahead of figures today that may show U.S. new home sales rose, boosting speculation the data will reduce prospects for more Federal Reserve quantitative easing. The Australian currency maintained gains after Foreign Minister Kevin Rudd resigned, potentially paving the way for a leadership battle with Prime Minister Julia Gillard. Demand for the South Pacific currencies was tempered after a report signaled China’s manufacturing may shrink. “Japanese investors are buying Aussie against the yen,� said Lee Wai Tuck, a strategist at Forecast Pte in Singapore. “There’s some hope that things in the U.S. may be turning slightly better. There’s a bit of optimism over there for now and that’s helped to encourage some risk-taking.� Australia’s currency gained 0.5 percent to 85.48 yen at 6:12 p.m. in Sydney. It bought $1.0678 from $1.0663 yesterday. New Zealand’s dollar rose 0.5 percent to 66.82 yen. It was at 83.48 U.S. cents from 83.40. The MSCI Asia Pacific Index (MXAP) added 0.3 percent after earlier dropping as much as 0.5 percent. Australia’s 10-year (GACGB10) bond yield was unchanged at 4.09 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped four basis points, or 0.04 percentage point, to 3 percent. New Home Sales Sales of previously owned homes in the U.S. probably rose for a fourth month in January, climbing 1.1 percent to a 4.66 million annual rate, the highest level since May 2010, according to the median estimate of economists surveyed by Bloomberg News before the National Association of Realtors releases its data. The Australian currency held its advance after Kevin Rudd, the former Prime Minister who was ousted by Gillard as leader in 2010, announced during a trip to Washington that he was quitting as foreign minister. His resignation follows speculation about a challenge for the leadership of the governing Labor Party and opens the door for Rudd to contest the post of prime minister again. The Aussie was also supported after figures from the statistics bureau today indicated wages in the country rose 1 percent in the fourth quarter from the previous three-month period when they gained 0.7 percent. A separate report by Westpac Banking Corp. and the Melbourne Institute showed that the nation’s leading economic indicators climbed in December. China Manufacturing A preliminary reading of a purchasing managers’ index by HSBC Holdings Plc and Markit Economics showed the gauge was at 49.7 this month, after a final figure of 48.8 in January. A reading below 50 points to a contraction. January and February economic data are distorted by a weeklong Chinese holiday. “China, in terms of risk appetite, will be less of a positive heading into the end of the quarter,� said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “The bad news for the Aussie is that this is not just an issue of seasonals, but it’s also an issue of China continuing to slow down.� China is Australia’s biggest trading partner and New Zealand’s second-largest export destination. To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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