By Candice Zachariahs Oct. 2 (Bloomberg) -- The New Zealand dollar fell for a second day before a jobless report that may signal a slow recovery from recession for the U.S. economy, damping demand for higher-yielding assets. Australia’s was little changed. Both currencies dropped yesterday by the most in a month as the Institute for Supply Management’s gauge of manufacturing in the U.S. expanded less than anticipated and more Americans filed claims for unemployment benefits. The so-called kiwi headed for its first weekly decline in 12, ending the longest stretch of gains since being freely floated in 1985, as prices slid for commodities which comprise more than half the nation’s exports. “Risk appetite has certainly been dented and the market will be nervous ahead of non-farm payrolls,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Wellington. “We’ve been getting to fairly elevated levels in the Aussie and kiwi over the past few weeks, and as things get stretched and overbought, when they turn around they can fall pretty quickly.” New Zealand’s dollar declined 0.3 percent to 71.28 U.S. cents as of 2:41 p.m. in Sydney from 71.49 in New York yesterday when it slid 1.1 percent. It has fallen 0.9 percent since Sept. 25. The currency fell 0.4 percent to 63.75 yen and is set for a second week of losses against Japan’s currency. Australia’s dollar was little changed at 86.99 U.S. cents from 86.97 cents in New York. It yesterday touched 88.59 cents, the strongest since August 2008, before dropping 1.5 percent. The currency fell 0.2 percent to 77.80 yen. U.S. Manufacturing U.S. stocks tumbled by the most in three months after the ISM’s factory gauge decreased to 52.6 in September from 52.9 in August. Fifty is the dividing line between expansion and contraction. The number of jobless claims climbed to 551,000 last week, more than economists forecast, figures from the Labor Department showed. A break below 86.75 cents for Australia’s currency may spur a drop toward 85 cents, while New Zealand’s currency will find buyers near 70 cents, Speizer said. “The Australian dollar’s near-term prospects will rest on the fallout for U.S. stocks from tonight’s payrolls report,” John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a note to clients. “Key support for the Australian dollar is at 85.90 cents.” Economists surveyed by Bloomberg News expect the U.S. lost 175,000 jobs in September, compared with 216,000 in August. The world’s biggest economy has shed about 6.9 million jobs since the recession began in December 2007. Interest 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. “Australia will begin raising rates sooner than the U.S.,” damping any gains by the U.S. currency, said Dariusz Kowalczyk, chief investment strategist in Hong Kong at SJS Markets Ltd. in a Bloomberg Television interview. “Commodities will gain between now and the end of the year, lending further support to the Aussie.” Futures markets are pricing in a more than 80 percent chance that the Reserve Bank of Australia will raise rates when it meets in November. There is an 18 percent possibility that Governor Glenn Stevens will announce an increase when the bank meets Oct. 6. A gauge of Australian inflation held below the central bank target range for a fifth month in September, increasing policy makers’ scope to keep borrowing costs unchanged when they meet next week. Only one in 18 economists surveyed by Bloomberg News expects an advance in the benchmark. Inflation, Bonds Consumer prices rose 1.3 percent from a year earlier, after gaining 1.7 percent in August, according to an index compiled by TD Securities Ltd. and the Melbourne Institute released today. Prices were unchanged from August. The central bank aims to keep inflation between 2 percent and 3 percent. Australian government bonds rose for a second day. The yield on 10-year notes fell 17 basis points, or 0.17 percentage point, to 5.12 percent, the lowest since May 21, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 1.224, or A$12.24 per A$1,000 face amount, to 100.926. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.22 percent from 4.25 yesterday.

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