By Candice Zachariahs Dec. 22 (Bloomberg) -- The Australian dollar fell to its lowest level in 11 weeks as investors bet an improving U.S. economy will prompt the Federal Reserve to withdraw stimulus, reducing the South Pacific nation’s yield advantage. New Zealand’s dollar touched its weakest in almost a month as futures trading in Chicago indicated a 46 percent chance that Fed policy makers will increase the target rate for overnight lending between banks by at least a quarter-percentage point by June. A government report tomorrow is forecast to show American consumers earned and spent more in November. “We’re seeing bond yields push up, offering support to the U.S. dollar, and backed by stronger economic data as well,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. A firmer U.S. dollar “should keep the kiwi and Aussie under pressure.” Australia’s currency fell 0.3 percent to 87.92 U.S. cents as of 4:12 p.m. in Sydney from 88.15 cents in New York yesterday. It touched 87.65 cents, the least since Oct. 6. The currency bought 80.30 yen from 80.36 yen. New Zealand’s dollar declined 0.3 percent to 70.33 U.S. cents from 70.54 cents in New York, and touched 70.31 cents, the least since Nov. 27. It bought 64.23 yen from 64.31. New Zealand’s dollar will find buyers near 70.50 cents, with a break of that level opening up declines toward 69 cents, Jones said. The Australian dollar may be supported near 87.90 cents, he said, recommending that investors purchase both currencies on dips. Interest Rates Australia’s dollar dropped a second day as the premium that the nation’s two-year government debt offers over similar- maturity Treasuries fell to 345 basis points, near the least since Oct. 5. A basis point is 0.01 percentage point. A gauge of Australian leading economic indicators fell for the first time in five months in October. The New York-based Conference Board’s index dropped 0.3 percent to 114.4 points, according to a report e-mailed to Bloomberg News today. “Looking into next year, levels below 88 cents look like great value and 85 cents would be a snip if capitulation got it that far,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney. “It is unlikely that the Australian dollar will move at odds with risk appetite for too long given its formidably large yield advantage.” Benchmark interest rates are 3.75 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. Current Account Gap New Zealand’s dollar was little changed after the nation posted its narrowest annual current-account deficit in six years as the recession reduced demand for imports and curbed profits of foreign-owned companies. The shortfall shrank to NZ$5.72 billion ($4 billion) in the 12 months ended Sept. 30 from NZ$10.37 billion in the year through June, Statistics New Zealand said today. The median estimate in a Bloomberg survey of nine analysts was for a NZ$6.51 billion gap. Declines in the currency may be limited before a report tomorrow economists expect will show the nation’s economic expansion accelerated in the third quarter to 0.4 percent, from 0.1 percent in the previous three-month period. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.55 percent. Australian government bonds fell for a second day. The yield on 10-year notes added 10 basis points, or 0.10 percentage point, to 5.50 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.71, or A$7.10 per A$1,000 face amount, to 98.20. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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