By Candice Zachariahs and Ron Harui May 11 (Bloomberg) -- The Australian and New Zealand dollars fell for the first time in three days as demand for higher-yielding assets declined amid speculation a loan plan of almost $1 trillion won’t end the euro zone’s fiscal crisis. Both currencies also declined after China said consumer prices rose at the fastest pace in 18 months and industrial output gained less than forecast. Declines in the Australian dollar may be tempered after Treasurer Wayne Swan said he expected the nation’s budget to return to surplus three years earlier than forecast, seeking a “solid buffer” against the European debt crisis. “The currency markets in general seem to be taking a less optimistic view of the bailout package,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “The Australian dollar is pretty vulnerable to any renewal of outright negative sentiment toward euro zone-related issues.” Australia’s dollar fell to 89.84 U.S. cents as of 11:05 a.m. in London from 90.28 U.S. cents in New York yesterday. It slid 1.6 percent to 82.92 yen. New Zealand’s dollar dropped 0.5 percent to 71.93 cents and weakened 1.6 percent to 66.38 yen. Governments of the 16 nations using the euro agreed to lend as much as 750 billion euros ($959 billion) to the most-indebted countries. The European Central Bank said it will counter “severe tensions” in “certain” markets by purchasing government and private debt. Demand for the South Pacific nations’ currencies weakened yesterday after European Central Bank President Jean-Claude Trichet said the rescue plan wasn’t supported by all 22 of its Governing Council members. Greece may have its credit rating cut to junk within the next month, Moody’s Investors Service said yesterday, citing the country’s “dismal” economic prospects. Australian Budget Australia’s currency and bonds may rally after Treasurer Swan, releasing the annual budget in Canberra, estimated a A$1 billion ($900 million) surplus in 2012-13, from a A$40.8 billion gap in the year to June 30. He said he’ll keep a 2 percent cap on spending growth until the surplus reaches 1 percent of gross domestic product. “The budget should be mildly positive for the Aussie and shore up the bond market,” said Tony Morriss, senior markets strategist in Sydney at Australia & New Zealand Banking Group Ltd. “It’s a very good performance for Australia standing against the rest of the world with net debt topping out at six percent at gross domestic product.” On the Sydney Futures Exchange, the 10-year bond futures contract for June delivery was little changed at 94.485, implying a yield of 5.515 percent. The benchmark 10-year note that matures in April 2020 closed today at a yield of 5.49 percent, according to data compiled by Bloomberg. ‘Difficult’ Balance Australia’s currency declined against nine of its 16 most- traded counterparts on concern China may have to rein in its economic expansion. China’s consumer prices rose 2.8 percent in April from a year earlier, compared to the 2.7 percent median prediction of economists surveyed by Bloomberg News. Producer prices jumped 6.8 percent, also topping estimates, today’s release from the statistics bureau showed. Industrial output for April advanced 17.8 percent, less than the 18.5 percent economist forecast. “You have the combination of stronger inflationary pressures and also some signs of softening in the data -- it’s difficult for China to get the balance right,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp., Australia’s second-largest lender. A slowing economy in China “emphasizes that it will be harder for the Aussie to break through its highs.” Investors should buy the Australian currency if it falls toward 87 U.S. cents and sell it on gains to 93 cents, Westpac’s Rennie said. China is Australia’s largest trading partner and New Zealand’s second-biggest export market. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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