The Australian dollar reached the highest in more than a year before retail sales and employment data this week that may intensify speculation the central bank will raise rates as early as October. Australia’s currency gained to the strongest since August 2008 against the U.S. dollar before a government report that economists said will show consumer spending rose for the fourth time in five months. New Zealand’s dollar climbed to the strongest since September 2008 against the greenback after slipping earlier as the nation’s finance minister signaled concern over the currency’s recent gains. Australia’s “central bank has raised concerns regarding the state of the household, particularly income growth and consumption over the second half,” said Amber Rabinov, an economist in Melbourne at Australia & New Zealand Banking Group Ltd. “Better than expected results could add to the case for a rate rise as early as October,” boosting the Australian currency, she said. Australia’s currency rose 0.3 percent to 85.85 U.S. cents as of 4:33 p.m. in Sydney, the most since Aug. 29, 2008. The Aussie declined 0.2 percent to 79.47 yen. New Zealand’s dollar was at 69.40 U.S. cents from 69.28 cents in New York yesterday when it reached as high as 69.35 cents, the strongest since Sept. 22. It bought 64.15 yen. Australian business confidence jumped in August to its highest level in almost six years, according to a National Australia Bank Ltd. survey of more than 550 companies between Aug. 24 and Aug. 28. The sentiment index rose 8 points to 18, the highest level since October 2003, NAB said today. A figure above zero shows optimists outnumber pessimists. Interest Rates Reserve Bank of Australia Governor Glenn Stevens will raise the target rate by 1.90 percentage points over 12 months, according to a Credit Suisse AG index based on swaps trading. The central bank holds its next policy meeting on Oct. 6. Australia’s currency is poised to advance toward 90 cents after completing a 61.8 percent retracement of the drop from the record-high of 98.50 U.S. cents reached in July 2008 to the October 2008 low of 60.09 cents, Bank of Tokyo-Mitsubishi UFJ Ltd. said. The target of 90 cents represents a 76.4 percent retracement in Fibonacci analysis, based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. Benchmark interest rates are 3 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. Retail Sales The Statistics Bureau is expected to report tomorrow that Australian retail sales climbed in July by 0.5 percent, according to the median estimate of 20 economists in a Bloomberg News survey. The unemployment rate is lower than the government forecast in May when it said joblessness would hit 6 percent in the June quarter. The jobless rate will rise to 5.9 percent in August from 5.8 percent, analysts forecast ahead of a Sept. 10 report. Australian advertisements for job vacancies rose in August for the first time in 16 months, an Australia & New Zealand Banking Group Ltd. report showed yesterday. The Australian and New Zealand dollars slipped against the yen as the Shanghai Composite index fell as much as 1.7 percent before erasing its decline. Australia’s currency has to pay “particular attention” to the Shanghai Composite because its economy is “so geared toward the China economic story,” David Forrester, a Singapore-based strategist with Barclays Capital, said in a Bloomberg Television interview. Both South Pacific nations’ currencies are highly correlated with indicators of risk like equity markets, he said. ‘Out of Line’ Demand for New Zealand’s dollar was also limited as Finance Minister Bill English said its gains are running counter to the nation’s low interest rates and weak growth prospects. “It appears to be out of line with New Zealand’s fundamentals,” English said today in a Radio New Zealand interview. “It will be interesting to see what happens over the next six months or so as Australia starts to raise their interest rates because their economy is growing and New Zealand interest rates stay flat.” The nation’s economy may take three to five years to achieve sustainable growth based on exports and investment, he said before parliament. The Reserve Bank of New Zealand meets on Sept. 10, when economists expect it to keep borrowing costs at a record low. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.08 percent from 4.11 yesterday. Australian government bonds rose for the first day in five. The yield on 10-year notes fell five basis points, or 0.05 percentage point, to 5.45 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.335, or A$3.35 per A$1,000 face amount, to 98.517.

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