The Australian dollar rose as the price of gold, the nation’s third most-valuable raw material export, gained to an 11-week high as political tensions mounted in the Middle East. New Zealand’s currency advanced. The currencies also strengthened before reports this week that economists expect will show U.S. manufacturing shrank at the fastest pace since 1980. Prices of gold and crude oil rose for a second day after Israeli air strikes in the Gaza strip killed at least 285 people. “The Aussie is benefiting from the improved tone in gold,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. “The Aussie will remain within a 67.50 and 70 range for the remainder of this year,” he said referring to the currency by its nickname. Australia’s currency rose 0.4 percent to 68.69 U.S. cents as of 3:14 p.m. in Sydney from 68.40 cents late in New York on Dec. 26. The currency advanced 0.1 percent to 62.17 yen. New Zealand’s dollar gained 0.4 percent to 57.77 U.S. cents from 57.55 in New York late last week. It bought 52.22 yen from 52.35. The Institute for Supply Management’s December factory index dropped to 35.4, the lowest reading in almost three decades, according to the median estimate of economists surveyed by Bloomberg News. A separate report may show a record drop in U.S. home prices accelerated in October. Gold rose as much as 2.4 percent to $890.49 an ounce, the highest since Oct. 10, after Israel called up reservists following two days of air attacks against the Hamas-led Gaza strip. Crude oil gained as much as 5.6 percent. The Middle East produces almost a third of the world’s oil. Middle East Tensions “Tensions between Israel and Hamas will remain in focus and any heightening of these tensions could see gold, oil and subsequently euro and the Australian dollar higher through the week,” Sydney-based Annette Martins, a currency strategist at Macquarie Bank Ltd., wrote in a research note today. The Australian dollar may advance to 70 cents during the week, according to her. Commodity prices influence the Australian dollar as raw materials account for 60 percent of the nation’s exports. Australia’s currency is down 20 percent against the dollar and 40 percent versus the yen this year as declining commodity prices and the global slump prompted investors to dump the nation’s assets. New Zealand’s currency has dropped 23 percent and 37 percent against the greenback and yen respectively. The currencies may extend 2008’s decline early next year, said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington, as the U.S. dollar strengthen amid falling interest rates worldwide. Rate Advantage Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. “We do have interest rates at nearly zero in the U.S., but they’re heading that way in almost every other major economy around the world,” said Hampton. “Fears on the global economy will start to resurface and that will limit the topside in the Aussie and the Kiwi,” next year, she said. The Aussie will likely be sold above 70 cents and find support at 65 cents into year-end, while New Zealand’s dollar will trade between 54 and 60 U.S. cents, Hampton said. Currency movements may be erratic amid lower volumes over the New Year holidays, she said. Australian government bonds advanced. The yield on the 10- year note fell 11 basis points, or 0.11 percentage point, to 3.98 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.989, or A$9.89 per A$1,000 face amount, at 110.581. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.48 percent.

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