By Candice Zachariahs Nov. 9 (Bloomberg) -- The New Zealand dollar surged the most among the 16 most-traded currencies after Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, raised its forecast milk price to the second highest on record, adding to evidence the nation’s growth will quicken. Australia’s currency gained for a fourth day as home-loan approvals there rose the most in six months. The South Pacific dollars also climbed on speculation the Federal Reserve will keep its key rate near zero to combat the highest U.S. jobless rate since 1983, spurring demand for higher-yielding assets. “The New Zealand dollar has led the way higher” after the Fonterra payout estimate, said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “Risk is on because of the situation with U.S. unemployment and the fact that interest rates there would be kept low.” New Zealand’s dollar gained 1.7 percent, the most in three weeks, to 73.72 U.S. cents as of 4:16 p.m. in Sydney from 72.51 cents in New York on Nov. 6. It climbed 2 percent to 66.45 yen, the biggest increase since Oct. 29. Australia’s currency rose 0.8 percent to 92.60 cents from 91.89 cents in New York. It bought 83.47 yen from 82.59 yen. Auckland-based Fonterra will probably pay its 10,500 farmer-shareholders NZ$6.05 ($4.39) for each kilogram of milk supplied in the year to May 31, up from NZ$5.10 previously, the company said. That would be the second-highest since Fonterra paid a record NZ$7.90 a kilogram in the year ended May 2008. ‘Fuel to the Fire’ “Dairy prices are one of the fundamental drivers of the New Zealand dollar so with that on board we’ll see more support for the kiwi this week,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The market still has a hike in there by March next year, which is quite a bit sooner than what the Reserve Bank outlined in their most recent statement. This is further fuel to the fire.” New Zealand’s dollar may find sellers near 73.75 U.S. cents today, while Australia’s currency may rise to 92.90, he said. Swaps traders are betting that the Reserve Bank of New Zealand will raise interest rates by more than 2 percentage points over the next year, according to a Credit Suisse AG index. Governor Alan Bollard said Oct. 29 that he saw “no urgency” to withdraw monetary policy stimulus and expects “to keep the cash rate at the current level until the second half of 2010.” New Zealand’s two-year swap rate, a fixed payment made to receive floating rates and is sensitive to interest-rate expectations, rose a second day to 4.57 percent. Loans, Jobs Australia’s dollar extended gains as the number of loans granted to build or buy houses and apartments climbed 5.1 percent to 65,505 in September, the statistics bureau said today. That was the biggest increase since March and exceeded the median estimate for a 3 percent increase from the 17 economists surveyed by Bloomberg. Advertisements for job vacancies in the nation fell in October for the first time in three months. Jobs advertised in newspapers and on the Internet dropped 1.7 percent from September, when they gained 4.4 percent, according to an Australia & New Zealand Banking Group Ltd. report today. “While some normalization of official interest rates appears warranted as the economy continues to recover, we would caution against a rapid increase in rates over the near-term,” said Warren Hogan, chief economist at ANZ Bank in Sydney. Traders are betting on a 68 percent chance that the Reserve Bank of Australia will increase its target rate by 25 basis points when it meets Dec. 1, according to a separate Credit Suisse index. Funding Currency Benchmark interest rates are 3.5 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 carry trades is that currency market moves will erase profits. Demand for the U.S. dollar waned as the International Monetary Fund said traders are probably using it to fund carry trades. “There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published yesterday. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.” Australian government bonds fell for a fourth day. The yield on 10-year notes rose three basis points, or 0.03 percentage point, to 5.66 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.217, or A$2.17 per A$1,000 face amount, to 97.064. The 10-year yield reached its highest this year on June 19 when it advanced to 5.78 percent.

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