By Candice Zachariahs Feb. 5 (Bloomberg) -- The Australian dollar rose from a six-month low versus the yen, paring its longest stretch of weekly losses since July, as investors bet its declines were too rapid. New Zealand’s currency also climbed. Gains in the so-called Aussie were maintained after the central bank said economic growth is likely to accelerate this year even if policy makers are forced to raise interest rates by another three quarters of a percentage point. The two South Pacific currencies headed for weekly declines versus the U.S. dollar before the a report today forecast to show payrolls in the world’s largest economy rose by 15,000 last month, improving prospects for interest-rate increases by the Federal Reserve. “The Aussie fell off a cliff yesterday so we’re seeing a bit of a recovery, but things are still fragile,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The risk to the market is that you get a bigger than 15,000 payrolls increase tonight so that pushes the U.S. dollar up and the risk currencies lower.” Australia’s currency rose 0.7 percent to 77.56 yen as of 4:57 p.m. in Sydney, trimming its weekly decline to 2.8 percent. It yesterday touched 76.23 yen, the lowest since July 22. The currency bought 86.62 U.S. cents from 86.46 cents yesterday and is set to drop for a fourth week, the longest stretch of declines in a year. New Zealand’s dollar rose to 61.64 yen from 61.20 yen yesterday, and down from 63.28 yen on Jan. 29 in New York. It bought 68.85 U.S. cents from 68.73 cents, set for a 1.8 percent weekly decline. Commonwealth Bank Commonwealth Bank of Australia today lowered its forecast for the Australian dollar saying it will peak at 88 cents in the second quarter before ending the year at 85 cents. The Aussie’s second-most accurate forecaster in 2009 had previously expected a peak of 98 cents with the currency trading at 90 cents by December, according to Bloomberg data. It also said today that New Zealand’s dollar will probably trade at 70 cents through the first half of the year before ending 2010 at 71 cents. Australia’s dollar also gained today after a report showed the nation’s building industry expanded in January at the fastest pace in two years amid rising demand for apartment, engineering and commercial construction. RBA Statement The Reserve Bank of Australia said today in its quarterly policy statement that the economy will be growing at an annual pace of 3.25 percent in the three months through December 2010, up from 2 percent last quarter. Officials based their prediction on an assumed increase in the overnight cash rate target to 4.5 percent at the end of 2010. That 4.5 percent level is “basically what the market has got priced,” said Capurso. Australia’s dollar risks a decline below 86 cents and 76 yen on a better U.S. jobs report, he said. 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 percent 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. Both South Pacific nations’ dollars are the worst performers against the yen this week among the 16 most-traded currencies as global stocks and prices of commodities slid. ‘Big Problems’ Investors sold higher-yielding assets on deepening concern over budget deficits in some European nations. Portugal and Greece yesterday led a surge in the cost of insuring against losses on sovereign debt as a crisis of confidence in Europe forced Spain’s government to increase the amount it pays to borrow. The MSCI World Index and the Reuters/Jefferies CRB Index of commodities are both headed for a fourth weekly decline. “The big problems coming to the fore are the sovereign risks in play,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “With equity markets falling and commodities faltering, Japanese retail margin accounts have started to exit long positions” betting on gains in currencies such as the Australian and New Zealand dollars, he said. The Aussie will find buyers at 85.80 cents and then 83 cents, he said. Australian government bonds rose for a second day. The yield on 10-year notes fell six basis points, or 0.06 percentage point, to 5.39 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.42, or A$4.20 per A$1,000 face amount, to 99.01. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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