New Zealand’s dollar advanced, reversing a decline, after Standard & Poor’s raised the outlook on the country’s sovereign debt rating to stable from negative. Australia’s currency strengthened. The New Zealand dollar extended a three-month rally and swap rates fell by the most in two weeks after S&P said that today’s budget showed the “government in sound position,” and affirmed its foreign-currency debt rating at AA+. Finance Minister Bill English said the budget deficit will widen to NZ$11.87 billion ($7.3 billion) in the year to June 30, 2010, as the worst recession in three decades erodes tax revenue. “This budget strikes an appropriate balance between providing short-term stimulus, while at the same time putting New Zealand onto a firmer path of long-term fiscal consolidation,” said Kyran Curry, a Melbourne-based credit analyst at S&P. The strength of New Zealand’s dollar has “the risk of weighing on a full recovery and export volume growth.” New Zealand’s dollar rose 0.6 percent to 61.81 U.S. cents as of 3:37 p.m. in Sydney from 61.45 cents yesterday in New York. It earlier fell as much as 0.4 percent. The currency gained 1.7 percent to 59.62 yen. Australia’s currency advanced 0.3 percent to 77.78 U.S. cents and climbed 1.3 percent to 74.95 yen. Best Performers The Australian and New Zealand dollars are the best performers against the U.S. currency this month, supported by 10-year government bonds that offer premiums of 1.68 percentage points and 2.11 percentage points over similar maturity Treasuries, respectively. Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero 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. The Australian dollar rose on speculation investors will buy the nation’s higher-yielding assets on optimism the global economy is improving. An index of the Australia’s leading economic indicators rose in March for a second month as share prices, rural-goods exports and money supply gained. The New York-based Conference Board’s index climbed 0.4 percent to 112.2 points, after advancing 0.2 percent in February. Australia’s dollar briefly pared gains after a government report showed business investment fell for the first time in six quarters. Capital spending dropped 8.9 percent in the three months ended March 31 from the previous quarter, when it rose by a revised 7.3 percent, the Bureau of Statistics said in Sydney. ‘Highly Aware’ “Official interest rates have never been this low in the developed world in the 150-year period for which we have data,” Reserve Bank of Australia Deputy Governor Ric Battellino said in Sydney. Global policy makers are highly aware of the risk of fueling inflation by acting too slowly in reversing monetary easing, limiting “the probability of such a mistake being made,” he said. Australian government bonds fell for a second day. The yield on the benchmark 10-year note gained two basis points, or 0.02 percentage point, to 5.40 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security maturing in March 2019 dropped 0.139, or A$1.39 per A$1,000 face amount, to 98.863. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.57 percent from 3.66 yesterday.

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