The Australian and New Zealand dollars advanced after Australia’s trade surplus widened and commodity prices rose for its smaller neighbor, adding to optimism the worst of the world recession may be ending. Australia’s dollar gained to the highest in a week as the Australian newspaper reported Prime Minister Kevin Rudd plans a third round of stimulus in next month’s budget. The currencies also rose as equities rallied and New Zealand’s commodity export price index gained in March for the first time in eight months. Raw materials comprise more than half the two nations’ exports. “The trade surplus was a surprise on the topside and that gave a boost to the share market and the Aussie dollar,” said Timothy Connors, head of foreign exchange at Custom House Global Foreign Exchange in Sydney. The currency may advance toward 72.50 U.S. cents over the next week, he said. Australia’s currency rose 0.5 percent to 70.30 U.S. cents, near its strongest since March 26, as of 4:23 p.m. in Sydney, from 69.93 cents in New York late yesterday. It strengthened 0.9 percent to 69.51 yen. New Zealand’s dollar traded at 56.79 U.S. cents from 56.78 cents in New York. It bought 56.12 yen from 55.94. Australia’s trade surplus expanded to A$2.11 billion ($1.5 billion) in February as gold exports, the nation’s third most- valuable raw material export, surged, the Bureau of Statistics said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg News was for an A$700 million surplus. An index for prices of New Zealand’s commodities rose in March, led by beef, lamb, wool and dairy products, ANZ National Bank Ltd. said today in Wellington. Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said near-term whole milk powder prices rose to a five-month high amid increasing demand. Iron Ore Prices The advance in the Australian currency may be limited for the on concern prices will decline for raw materials. Companies including BHP Billiton Ltd. and Rio Tinto Group are set to receive less revenue from sales abroad of Australian iron ore and coal as new contracts come into effect. “Gains over 70 cents will not be sustainable in an environment of a sharply slowing global economy,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “The price cut in Australia’s key bulk commodities will start to flow through in the coming months.” The country’s iron ore, a steelmaking raw material, will sell for $51.90 a ton in the contract year starting yesterday, a 40 percent drop from 2008’s record, Morgan Stanley said. New Zealand’s dollar earlier slipped as Finance Minister Bill English said a stronger currency would make it difficult for the nation to snap out of its worst recession in more than three decades. ‘An Anomaly’ “Rising interest rates and a rising dollar are going to make it a bit more difficult for New Zealand to get through the bottom of this recession and out the other side,” English said today in an interview with Radio New Zealand. “If we are in the bottom of a sharp recession, then rising interest rates and a rising currency are a bit of an anomaly.” A lower currency would bolster exports, which make up 30 percent of the economy, English said. New Zealand’s dollar surged 12 percent in March against the greenback, its biggest advance since 1985. “The near-term outlook for New Zealand is undeniably ugly and further rate cuts from the Reserve Bank of New Zealand are likely in coming months, which will weigh on the currency,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. New Zealand’s dollar will trade between 55.50 U.S. cents and 57 cents, she said. Benchmark Interest Rates Gains in the two currencies may also be tempered before a meeting of the European Central Bank, where policymakers are forecast to lower their benchmark interest rate to 1 percent. Leaders of the group of 20 largest developed and emerging nations are meeting in London to discuss tighter regulation for financial markets. Benchmark interest rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Australian government bonds rose for a fourth day. The yield on 10-year notes fell three basis points, or 0.03 percentage point, to 4.36 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.27, or A$2.70 per A$1,000 face amount, to 107.14. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.75 percent from 3.66 yesterday.

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