Oct. 1 (Bloomberg) -- The Australian dollar reached its highest level since August 2008 as manufacturing expanded for a seventh month in China, the nation’s largest trading partner. New Zealand’s currency was little changed. Australia’s dollar advanced for a fourth day against the yen as futures showed a more than 80 percent chance the South Pacific country’s central bank will raise interest rates as early as November. New Zealand’s currency yesterday completed a seventh month of gains as prices advanced for commodities that account for more than half the nations’ exports. “There’s a weak U.S. dollar permeating through commodities and a sense that you want to be in emerging-market, high-growth and commodity-driven trades,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. For the Australian and New Zealand currencies “the trend is clearly a rising trend,” he said. Australia’s currency rose as high as 88.59 U.S. cents, the strongest since August 2008, before trading at 88.14 U.S. cents as of 2:04 p.m. in Sydney from 88.28 cents in New York yesterday. The currency rose 0.2 percent to 79.32 yen. New Zealand’s dollar was at 72.15 U.S. cents from 72.32 cents in New York yesterday. It bought 64.91 yen from 64.87 yen. Both currencies climbed earlier against the dollar and yen amid signs the outlook for manufacturing in China, Australia and Japan is improving. The Purchasing Managers’ Index for China increased to a seasonally adjusted 54.3 from 54.0 in August, the Federation of Logistics and Purchasing said today. The Australian Industry Group and PricewaterhouseCoopers survey today showed that a domestic manufacturing index rose to the highest level since December 2007 in September as companies boosted production, inventories and deliveries. Benchmark Rates Confidence among Japan’s largest manufacturers rose for a second straight quarter with the Tankan index of sentiment climbing to minus 33 from minus 48 in June and a record low of minus 58 in March, the Bank of Japan said today. A negative number means pessimists outnumber optimists. “The Aussie should benefit from a China-led Asian recovery and also monetary policy tightening expectations,” said Tomoko Fujii, senior currency strategist at Bank of America Securities- Merrill Lynch in a Bloomberg Television interview. “The kiwi is also likely to benefit from the global recovery and firmer commodity prices.” 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. High Bar Set Australia’s dollar has climbed 26 percent this year as traders bet the Reserve Bank of Australia will raise its benchmark 1.91 percentage points over the next 12 months, according to a Credit Suisse Group AG index based on swaps. “This sets the bar unusually high for a hawkish surprise at the meeting,” on Oct. 6, New York-based Todd Elmer and London-based Michael Hart, currency strategists at Citigroup Inc. said in a note to clients yesterday. The market is pricing in changes that “would mark the second-fastest pace of tightening since the RBA adopted its present inflation-targeting framework in the early 1990s,” they wrote. ‘Cautious’ Approach Citigroup recommended investors sell the Australian currency versus Canada’s as policy makers in the South Pacific nation may “signal a cautious approach in removing stimulus,” Elmer and Hart said. Investors should target a decline to C$0.9150 per Australian dollar and “reassess” the trade on an advance to C$0.96, the analysts said. The so-called Aussie traded at C$0.9438. Australian government bonds ended two days of losses. The yield on 10-year notes fell eight basis points, or 0.08 percentage point, to 5.30 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.618, or A$6.18 per A$1,000 face amount, to 99.647. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.28 percent from 4.31 percent yesterday. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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