By Candice Zachariahs March 28 (Bloomberg) -- The Australian and New Zealand dollars ended six days of gains versus the U.S. currency on speculation the Federal Reserve will end its bond-buying program, raising prospects the supply of the U.S. currency will drop. Bank of Atlanta President Dennis Lockhart is among officials scheduled to speak this week after Bank of St. Louis President James Bullard said March 26 that policy makers should discuss whether to complete a second round of quantitative easing due to end in June. New Zealand’s dollar fell from a one- month high after Prime Minister John Key said the nation may post a record budget deficit because of costs arising from last month’s earthquake. “It’s hard to see what the trigger will be to spur further sharp gains in the kiwi and Aussie, particularly with signs of a turnaround in U.S. dollar sentiment,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. Key’s comments may “knock some of the steam out of the kiwi,” he said. Australia’s dollar traded at $1.0261 as of 4:42 p.m. in Sydney from $1.0260 on March 25, when it climbed to $1.0294, the strongest since the currency was freely floated in 1983. The so- called Aussie rose 0.6 percent to 83.96 yen. New Zealand’s dollar weakened 0.4 percent to 75.07 U.S. cents after climbing to 75.76 cents on March 25, the highest since Feb. 22. The kiwi traded at 61.41 yen from 61.29. The Aussie will weaken to 98 U.S. cents by year-end, while New Zealand’s currency will fall to 75 cents, according to the median forecast of economists surveyed by Bloomberg. U.S. consumer spending, which accounts for about 70 percent of the economy, rose 0.5 percent in February after a 0.2 percent gain the prior month, according to economists’ forecast before the Commerce Department report today. ‘Pretty Good’ “The economy is looking pretty good,” Bullard told reporters in Marseille, France, on March 26. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short.” Lockhart, who will speak on the U.S. economic outlook in Atlanta today, said March 25 that while the Fed’s current monetary policy is appropriate, he is ready to tighten policy if recent quicker inflation persists. Bank of Chicago President Charles Evans and Bank of Boston’s Eric Rosengren will both speak today. Benchmark interest rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ assets. A shift in U.S. policy would reduce the extra yield investors can expect for investments in the two South Pacific nations. Yield Spread The extra yield investors get from two-year Australian debt over similar-maturity Treasuries was at 4.17 percentage points after shrinking to a six-month low of 4.12 on March 15. “The Australian dollar’s extended position versus the U.S. dollar will make moves in U.S. rates and the U.S. dollar very important,” David Forrester, a Singapore-based currency economist, and Yuki Sakasai, a Tokyo-based currency strategist, at Barclays Capital wrote in a note to clients today. “A stronger U.S. dollar on the back of higher U.S. rates would also have implications for commodity prices.” Commodities including iron ore and dairy products make up more than half of exports for Australia and New Zealand. Futures Bets Futures traders increased bets 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 51,734 on March 22, compared with net longs of 47,951 a week earlier. New Zealand’s dollar fell against 12 of its 16 major counterparts after Key said the “biggest budget deficit in history as I understand it” will be because of the earthquake. The prime minister spoke in an interview broadcast today by Television New Zealand. The Feb. 22 temblor, which killed more than 160 people and wrecked buildings in the South Island city of Christchurch, prompted the central bank to cut interest rates on March 10 The budget operating deficit may widen to more than NZ$16 billion ($12 billion), exceeding 8 percent of gross domestic product, from NZ$11.1 billion, or 5.5 percent, forecast in December, Finance Minister Bill English said March 17. English will deliver the budget on May 19. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose four basis points to 3.33 percent. --Editors: Jonathan Annells, 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: Nicholas Reynolds at nreynolds2@bloomberg.net.

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