By Candice Zachariahs Oct. 8 (Bloomberg) -- The Australian dollar surged to its highest since August 2008 as employers unexpectedly added jobs in September, boosting speculation the central bank will add to this week’s interest-rate increase. Bonds declined. New Zealand’s currency touched the strongest since July 2008 on speculation its policy makers may follow the Reserve Bank of Australia in raising borrowing costs. The number of people employed in Australia rose 40,600 from August, when economists had estimated employers had eliminated 10,000 jobs. “It really vindicates the RBA’s decision to start raising interest rates and probably makes it very likely that there’ll be a follow-up 25-basis-point hike in November and December,” said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney. “That means more interest rate support for the Australian dollar.” Australia’s currency touched 90.33 U.S. cents, the most since August 2008, before trading 1.1 percent higher at 90.13 cents as of 3:36 p.m. in Sydney. The currency bought 79.61 yen from 78.96 yen. New Zealand’s dollar gained 0.5 percent to 73.96 U.S. cents from 73.64 cents in New York. It touched 74.21 cents, the strongest since July 2008. The currency rose 0.1 percent to 65.33 yen. “Unemployment has not risen as far as had been expected,” RBA Governor Glenn Stevens said in the Oct. 6 statement that accompanied the decision to raise borrowing costs from a half- century low. Carry Trades The Australian and New Zealand dollars also rose as Asian stocks advanced for a third day and Alcoa Inc., the largest U.S. aluminum producer, reported an unexpected third-quarter profit. “The main risk is coming from the U.S. corporate earnings reporting season,” for the Australian dollar, Kyriakopoulos said. Better corporate results would boost risk appetite and be “supportive,” of the currency, he said. NAB expects the Aussie to peak at 93 U.S. cents in 2010 with the risk that it reaches that level sooner. Benchmark interest rates are 3.25 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 so-called trades is that currency market moves can erase profits. The premium investors get on two-year government debt in Australia rose to 3.69 percentage points over similar-maturity Treasuries and 4.32 points over Japanese bonds today. Australian Bonds Australian government bonds fell. The yield on one-year government bonds, which are sensitive to interest rate expectations, rose 13 basis points, or 0.13 percentage point, to 4.13 percent, reversing earlier losses. The yield on 10-year notes rose six basis points to 5.24 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 0.458, or A$4.58, per A$1,000 face amount, to 100.058. New Zealand’s dollar has been the best-performer among the 16 most-active currencies against the greenback over the past three months. The so-called kiwi has appreciated amid speculation that New Zealand’s central bank will raise rates by 1.53 percentage points over the next 12 months, according to a Credit Suisse AG index based on swaps trading. “The market is looking at when things turn around, kiwi interest rates will move possibly faster than Australian interest rates,” said Derek Mumford, a Sydney-based senior consultant at HiFX, a foreign exchange risk management firm. “The New Zealand economy has been lagging but it’s certainly coming out of recession.” ‘Kick-Start’ Lacking New Zealand Finance Minister Bill English said yesterday in an interview that the advance in the nation’s dollar threatens an export-led recovery. The country’s economy unexpectedly expanded in the second quarter, ending five quarters of contraction. “We’re surprised that it’s as high as it is,” English said. “Generally when we’ve had a recession, a low dollar has helped us kick-start out of that recession. That’s clearly not going to be the case this time.” New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose 10 basis point to 4.38 percent, the highest level since January.

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