July 31 (Bloomberg) -- The Australian and New Zealand dollars rose, headed for their longest set of monthly gains since 2004, on speculation a U.S. report today will show the contraction in the world’s biggest economy slowed last quarter. Australia’s currency is set for a sixth monthly gain versus the greenback and New Zealand’s is poised for a fifth as signs the global economy is recovering from its deepest recession since World War II increase demand for higher-yielding assets. Barclays Capital raised its forecasts for the Australian and New Zealand dollars, saying rising risk appetite will boost demand for the currencies in the short term. “A better-than-expected U.S. GDP result would be the final icing on the cake for July and would provide great opportunity for the Australian dollar to retest 83.38 cents,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. Australia’s currency rose 0.5 percent to 82.98 U.S. cents as of 4:15 p.m. in Sydney from 82.57 cents in New York yesterday, extending this month’s gain to 2.9 percent. The currency climbed 0.2 percent to 79.07 yen. New Zealand’s dollar gained 0.8 percent to 65.74 U.S. cents and advanced 0.5 percent to 62.61 yen. It has risen 1.8 percent against the U.S. currency this month. The U.S. economy shrank at a 1.5 percent pace following a 5.5 percent drop in the first three months of 2009, according to the median forecast of 66 economists surveyed by Bloomberg News before the Commerce Department report today. Benchmark Rates 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. Barclays Capital said it expects Australia’s currency to trade at 80 U.S. cents in a month and 82 cents in three months, increasing earlier estimates of 78 and 80 cents. New Zealand’s dollar will buy 64 cents in a month and 66 cents in three months, the bank said, raising it forecasts from 62 and 64 cents. The Australian dollar is heading for first monthly gain versus the New Zealand currency in three months on speculation the Reserve Bank of Australia will be among the first central banks in the industrialized world to start raising interest rates. RBA Governor Glenn Stevens said on July 28 that Australia may not be in “one of the more serious” downturns of the post- World War II era. New Zealand’s currency fell the most in three weeks yesterday after its central bank said it may cut borrowing costs further as a rising currency threatens the nation’s recovery from its worst recession in three decades. Buy Option Investors may benefit by buying an option to purchase the Australian dollar versus New Zealand’s at a strike price of NZ$1.2640 expiring Sept. 11, Commonwealth Bank of Australia said. “The risk of an RBNZ rate cut at the Sept. 10 meeting has increased following an unexpectedly dovish level of policy guidance,” Richard Grace, chief currency strategist in Sydney at Commonwealth Bank, wrote in a note to clients today. “At the same time, it is a certainty that the RBA will revise up their 2009 (and 2010) GDP forecasts on Aug. 7,” when the bank issues its quarterly monetary policy statement, he said Australia’s dollar fell to NZ$1.2636 from NZ$1.2661 yesterday. It has gained 1.1 percent this month. Australia today sold A$700 million ($580 million) of notes maturing April 2012 at a weighted average yield of 4.81 percent. The so-called bid-to-cover ratio was 4.9 times, compared with 3.21 times at the previous sale of similar-maturity notes on July 17. Australian government bonds rose. The yield on the benchmark 10-year note fell five basis points, or 0.05 percentage point, to 5.63 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.376, or A$3.76 per A$1,000 face amount, to 97.222. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.88 percent from 3.93. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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