The Australian dollar maintained yesterday’s decline against the yen as the Reserve Bank said interest rates are “appropriate,” curbing expectations for widening yield premiums on the nation’s assets. The central bank left the key rate at 4.75 percent today. Governor Glenn Stevens said inflation likely will be contained through the middle of next year and noted the market’s growing concern about the creditworthiness of some European nations. New Zealand’s currency also held losses against the yen as divisions among European officials about how to contain the region’s debt crisis damped demand for higher-yielding assets. “Increasingly, the risks are that now the RBA will be sidelined till the middle of 2011,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “The Aussie’s direction is going to be dependent on European peripheral developments.” Australia’s currency fell to 81.74 yen as of 4:46 p.m. in Sydney from 81.82 yen in New York yesterday, when it lost 0.2 percent. It fetched 99.08 U.S. cents from 98.99 cents yesterday. New Zealand’s dollar declined 0.1 percent to 62.90 yen. The currency bought 76.24 U.S. cents from 76.17 cents yesterday. A strong domestic currency “will assist, at the margin, in containing pressure on inflation over the period ahead,” Stevens said in his policy statement. “Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected.” Rates Outlook The Australian dollar may test 98.50 U.S. cents amid uncertainty about the timing of the central bank’s next rate increase, said Jim Vrondas, manager at the online foreign- exchange dealer OzForex Ltd. in Sydney. Traders are betting on an 88 percent chance Stevens will leave borrowing costs unchanged through the first quarter of next year after raising rates seven times since October last year, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Higher benchmark rates in Australia and New Zealand, compared with as low as zero in the U.S. and Japan, attract investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits. Australia’s building industry contracted in November for a sixth-straight month, according to a survey by the Australian Industry Group and Housing Industry Association, indicating previous rate increases are curbing demand. The construction performance index fell 1.8 points to 42.2 with a reading below 50 indicating that the industry is shrinking. Aid Package The Australian and New Zealand dollars also fell against the yen as Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund. “When we’ve seen confidence come back into the market in recent times it’s been over the possibility of an increase in the package,” said Vrondas. “For the market to have longer- term confidence in the euro, we probably will need some expansion to the amount of funds available.” The so-called kiwi dollar also declined as the nation’s house prices rose last month at the slowest pace in more than a year, according to a report from Quotable Value New Zealand, a Wellington-based government agency. To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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