By Candice Zachariahs June 28 (Bloomberg) -- The New Zealand dollar weakened from near a six-week high and fell the most in almost three weeks against Australia’s currency as business confidence in the smaller South Pacific economy declined in June. The Australian dollar was bolstered on speculation Prime Minister Julia Gillard may compromise on a proposed mining tax after ousting Kevin Rudd last week. The currency is headed for an advance this month against the greenback ahead of reports this week economists say will show U.S. consumer confidence and manufacturing growth weakened. “The flow of data points to a more dovish outlook from the Reserve Bank of New Zealand,” said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “At times when the global picture looks dimmer, you’d expect the New Zealand dollar to underperform.” New Zealand’s dollar traded at 70.97 U.S. cents as of 4:16 p.m. in Sydney from 71.40 in New York on June 25, paring this month’s gain to 4.3 percent. It touched 71.60 U.S. cents on June 23, its strongest since May 13. It fell 0.4 percent to 63.43 yen. Australia’s currency bought 87.35 U.S. cents from 87.41 cents in New York last week and is set to advance 3.3 percent in June. The currency fetched 78.06 yen from 78.02 yen. The Aussie rose 0.4 percent to NZ$1.2303. A net 38.5 percent of New Zealand companies surveyed expect sales and profits will increase over the next 12 months, down from 45.3 percent in May, according to a survey by ANZ National Bank Ltd. released today. The net figure subtracts the number of pessimists from the number of optimists. “Aussie’s got more upside than kiwi,” said Foster. Sovereign Risk U.S. Treasury two-year yields were near the lowest level in 2010 on speculation a slow recovery will prompt the Federal Reserve to delay a withdrawal of stimulus. “There seems to be a reawakening of concerns over how strong the U.S. upturn really is and that’s taking a toll on U.S. bond yields and the dollar,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. Aussie Longs Gillard, who ousted Rudd as Labor Party leader on June 24, has vowed to resolve a standoff over a proposed 40 percent mining tax plan on what Rudd called “super” profits. A compromise would be “positive for equities and the Australian dollar,” Roland Randall, an analyst at TD Securities Ltd. in Singapore, wrote in a note to clients. “Any perception that Australia’s ‘sovereign risk’ is falling back to previous levels will be welcomed by markets.” Futures traders decreased their bets that the Australian dollar will gain against the greenback, 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 Aussie compared with those on a drop -- so-called net longs -- was 11,806 on June 22, compared with net longs of 12,406 a week earlier. Investors may benefit from selling the Australian dollar against the greenback as it may decline 4 percent on a slowing Chinese economy, Westpac Banking Corp. said in an e-mailed note to clients today. The bank advised selling the Aussie as it gains toward 88.15 cents, looking for it to drop initially to 84 cents. They should exit the trade if the Australian dollar rises above 89 cents, it said. Interest Rates “The momentum behind the Chinese economy is flagging and that will be important for foreign-exchange markets,” Robert Rennie, the Sydney-based head of currency research at Westpac, said in a Bloomberg Television interview. China is Australia’s largest trading partner. Benchmark interest rates are 4.5 percent in Australia and 2.75 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. Swaps traders are betting on an 80 percent chance that Reserve Bank of New Zealand Governor Alan Bollard will increase the benchmark rate in July, according to a Credit Suisse AG index. Australian bond futures were little changed, with the 10- year contract for September delivery at 94.75 on the Sydney Futures Exchange from 94.73 on June 25. The implied yield on the futures stood at 5.25 percent. The implied yield on three-year futures was 4.71 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.22 percent from 4.25 last week. --Editors: Rocky Swift, Nicholas Reynolds To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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