By Candice Zachariahs Jan. 19 (Bloomberg) -- The Australian and New Zealand dollars fell against the yen as China’s central bank guided its benchmark one-year bill yield higher for the second time this year, damping investor demand for riskier assets. Australia’s dollar weakened against all 16 of its most- traded counterparts on speculation the People’s Bank of China will curb record loan growth to prevent bubbles emerging in the nation’s property and stock markets. China, Australia’s largest trading partner, last week said it was increasing the amount of funds that banks must set aside as reserves. “We’re now moving into a period where we’re getting signs of China withdrawing easy monetary policy rather than tightening,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “Softer equity price action may see Aussie back down towards 80 yen,” which would be an opportunity to buy the currency, he said. Australia’s currency fell 0.7 percent to 83.48 yen as of 4:13 p.m. in Sydney from 84.10 in New York yesterday. It slipped 0.3 percent to 92.34 U.S. cents. New Zealand’s dollar declined 0.6 percent to 66.70 yen, and traded at 73.79 cents from 73.89. Most Chinese stocks fell after the central bank decision with the Shanghai Composite Index paring to 0.3 percent gains of as much as 1 percent to be little changed. The MSCI Asia Pacific Index declined 0.7 percent. N.Z. Inflation The decline in New Zealand’s dollar was tempered before a government report tomorrow that economists said will show inflation accelerated to the fastest pace since the end of March. Consumer prices gained 2.1 percent in the fourth quarter from a year earlier, the quickest since the first three months of 2009, a government report will show on Jan. 20, according to a Bloomberg News survey. “Strong results” for inflation and retail sales on Jan. 21 “could encourage expectations of an early Reserve Bank of New Zealand move,” a team of UBS AG analysts, led by Singapore-based head of currency strategy Mansoor Mohi-uddin, wrote in a research note yesterday. The bank advises investors sell the Australian dollar versus the so-called kiwi as it is likely to weaken to NZ$1.22. The Aussie fell 0.2 percent to NZ$1.2512. New Zealand’s central bank Governor Alan Bollard said last month he expects to begin raising interest rates from a record- low around the middle of 2010. China Growth Westpac’s Rennie recommended buying Australia’s dollar if it weakens toward 91 U.S. cents before China reports growth figures. The nation will say on Jan. 21 gross domestic product expanded 10.5 percent in the fourth quarter from a year earlier, according to a Bloomberg survey. That would be the strongest growth since the first quarter of 2008. China will also release industrial output and retail sales data for December that day. “You’re looking at tremendously strong fourth-quarter growth in China,” Rennie said. “I don’t think that modest withdrawal of easy monetary policy in China necessarily changes the picture in a significant way.” Benchmark 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. Australian government bonds rose. The yield on the benchmark 10-year note fell two basis points to 5.50 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.14, or A$1.40 per A$1,000 face amount, to 98.23. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.55 percent from 4.58 percent. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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