The Australian dollar rose to the highest since October and New Zealand’s currency also gained as an expansion in Chinese manufacturing added to optimism the global slump is easing, spurring demand for high-yielding assets. The currencies traded near the strongest in more than two weeks against the yen as Australian stocks and U.S. equity futures rose on signs the world economy is on the mend. The central bank is forecast to keep Australia’s benchmark interest rate unchanged at 3 percent when it meets tomorrow. “Support should be solid at the 200-day moving average of 71.76 U.S. cents and it will be critical for this level to hold to confirm the uptrend,” said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney. “Traders now price a less than one in three chance the Reserve Bank cuts rates by 25 basis points, so only a surprise cut would undermine yield support for the Australian dollar.” Australia’s currency rose 0.6 percent to 73.52 U.S. cents as of 2:03 p.m. in Sydney from 73.06 cents in New York on May 1. The currency climbed 1 percent to 73.08 yen. New Zealand’s dollar advanced 0.7 percent to 57.39 U.S. cents from last week. It gained to 57.07 yen from 56.53 yen. Currency markets may face lower trading volumes with holidays in Japan this week, Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney, wrote today. Official Cash Rate In New Zealand, companies reduced demand for labor in the first quarter, with paid hours falling 0.4 percent from the fourth quarter, when they dropped 1.4 percent seasonally adjusted, Statistics New Zealand said in its quarterly employment survey today. Filled jobs declined 2.6 percent and the number of full-time equivalent employees decreased 2 percent. The economy probably contracted about 1 percent in the first quarter, the Treasury department said in a report on its Web site. The Reserve Bank of New Zealand last week lowered the official cash rate to a record low 2.5 percent to help the economy emerge from its worst recession in more than three decades. Traders are betting on a 24 percent chance of a quarter percentage-point cut in Australia’s benchmark rate when policymakers meet this week, according to a Credit Suisse Group AG index based on swaps trading. Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attract investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Gains in the Australian dollar may be limited before the release of a report May 7 showing the jobless rate grew to 5.9 percent, the most since July 2003, according to the median estimate in a Bloomberg News survey. Monthly Labor Report “The only local source of weakness is likely to be the monthly labor force report, which we expect to show 20,000 jobs were lost in April,” wrote Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. The median estimate of economists in a Bloomberg survey is for the economy to lose 25,000 jobs. House prices dropped by a record amount in the three months through March, as an index measuring the weighted average of prices for existing houses in the eight capital cities slumped 6.7 percent from a year earlier, the Australian Bureau of Statistics said in Sydney today. The drop was the biggest decline since the series began in 1986. Net Longs Decrease Futures traders decreased their bets the Australian dollar will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs - was 16,692 on April 28, compared with net longs of 17,250 a week earlier. New Zealand increased the size of its bond sales program for the year ending June 30 to NZ$5.5 billion ($3.1 billion) to fund a widening budget deficit. The program will be NZ$1 billion larger than forecast in December, the Debt Management Office said in a statement. The government has sold NZ$4.1 billion of bonds this financial year and plans to sell NZ$150 million of bonds a week until June 30. Australian government bonds declined for a fourth day. The yield on 10-year notes added four basis points, or 0.04 percentage point, to 3.72 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.34, or A$3.40 per A$1,000 face amount, to 104.15. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was unchanged at 3.35 percent.

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