By Theresa Barraclough and Garfield Reynolds Feb. 23 (Bloomberg) -- The Australian dollar traded near the strongest since 2000 versus the euro on speculation Greece’s fiscal deficit is set to widen and the South Pacific nation’s interest rates will remain above those of its counterparts. Australia’s currency was close to a one-month high versus the yen after Bank of Japan policy makers said they will keep borrowing costs low, according to minutes released today from last month’s meeting. Traders increased bets in the past week that the Reserve Bank of Australia will raise rates next month. New Zealand’s dollar was near a two-year high against the euro after the European Union denied it had plans to bail out Greece. “It’s hard to become bearish on the Aussie,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “According to the RBA, the economic situation is stronger than expected and it is natural for monetary tightening” to take place. Australia’s currency traded at 66.10 euro cents as of 3:10 p.m. in Sydney, from 66.23 yesterday in New York. The Aussie climbed to 66.42 euro cents on Feb. 18, the strongest since May 2000. The currency was at 89.97 U.S. cents from 90.04, and bought 81.91 yen from 82.07. New Zealand’s dollar was at 51.57 euro cents from 51.60, close to the 51.89 level it reached on Feb. 18 that was the highest since March 2008. The so-called kiwi was at 70.19 U.S. cents from 70.16 cents, and traded at 63.91 yen from 63.94 yen. ‘Below Normal’ Australia’s target lending rate is “still below normal,” RBA Governor Glenn Stevens told a parliamentary committee on Feb. 19. Deputy Governor Ric Battellino is scheduled to speak today in Sydney. Interest-rate swaps show a 41 percent chance Australian policy makers will increase the target cash rate by a quarter- percentage point at their March 2 meeting, from 28 percent odds a week ago, according to a Credit Suisse Group AG index. “The risk is we see that probability push up, supporting the Australian dollar,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Hong Kong. “A less dovish than feared Battellino, plus anticipated month-end U.S. dollar sell side flows” will lift the Aussie through 91 cents this week, she said. Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and 1 percent for the countries sharing the euro, attracting investors to the South Pacific nations’ higher- yielding assets. The risk in such trades is that currency market moves will erase profits. The U.S. economy still needs low interest rates to gain strength, Federal Reserve Bank of San Francisco President Janet Yellen said yesterday. ‘Speculative Scenario’ The European Union has no plan to bail out Greece, Amadeu Altafaj, a spokesman for the group, told reporters in Brussels yesterday. A rescue package is “a speculative scenario at this point in time,” he said. “Even if some form of rescue package were being put together in the background, it is clear that EU members are making sure that Greece will not have an easy ride,” Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington, wrote in a note to clients. “Bottom line is that the euro will continue to get dragged lower.” Trading Patterns Australia’s dollar may rise to a one-month high of 91.51 U.S. cents should it close above so-called resistance at 90.42 cents, said Pak Lai, a technical analyst at Forecast Pte in Singapore, citing trading patterns. The currency is set to test 90.42 as daily momentum charts, such as the moving average convergence/divergence, or MACD, show a buy signal for the Australian dollar versus the greenback, Ng said. The resistance level represents a 61.8 percent retracement of the currency’s fall from its January high of 93.28 cents to the February low of 85.79 cents, based on a series of numbers known as the Fibonacci sequence. “The Aussie looks like it’s going to go back up to test that level” of 90.42 cents, Ng said in an interview. “Everything is pointing up.” Australian government bonds rose for the first time in a week. The yield on the benchmark 10-year note declined one basis point to 5.58 percent, according to data compiled by Bloomberg. The 5.25 percent security due March 2019 added 0.03, or 30 Australian cents per A$1,000 face amount, to 97.68. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, fell to 4.19 percent from 4.21 percent. To contact the reporters on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Garfield Reynolds in Sydney at greynolds1@bloomberg.net.

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