By Theresa Barraclough and Ron Harui Nov. 17 (Bloomberg) -- The Australian dollar weakened from near the strongest level in 15 months after minutes from the central bank’s most recent meeting cast doubt on a third- straight increase in key lending rates. The currency trimmed this month’s gain to 3.7 percent as traders pared bets the Reserve Bank of Australian will raise borrowing costs at its next meeting on Dec. 1 after becoming the first central bank to boost rates twice in 2009. New Zealand’s dollar was close to the highest this month after commodity prices gained. Australia and New Zealand each get more than half their export revenue from raw materials. “The RBA minutes were less hawkish than hoped for, causing some market participants to pare back expectations for a December rate hike,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This may be a bit negative for the Australian dollar.” Australia’s currency fell 0.3 percent to 93.41 U.S. cents as of 3:32 p.m. in Sydney from 93.69 cents in New York yesterday, when it climbed to 94.06 cents, the strongest since Aug. 1, 2008. The currency dropped to 83.16 yen from 83.43 yen. New Zealand’s dollar was at 74.78 U.S. cents from 74.84 cents yesterday, when it rose to as high as 75.24 cents, the most since Oct. 26. The kiwi bought 66.60 yen from 66.67 yen. Rate Outlook Futures markets show a 63 percent probability of a rate increase when policy makers meet Dec. 1, down from 83 percent at the end of last week, according to a Credit Suisse Group AG index based on swaps trading. “If economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time,” RBA officials said in minutes released today in Sydney of their Nov. 3 meeting, at which they raised the overnight cash rate target to 3.5 percent. The pace of further rate increases “remained an open question,” they said. “The RBA appears likely to continue raising rates in the near future as it looks to normalize rates, but having gone 50 basis points in the last two months, I think it is possible that they could soon take their foot off the brakes, and coast for a bit,” Kenny Borowicz, a senior vice president at MF Global Singapore Ltd., part of the world’s largest broker of exchange- traded futures and options contracts, wrote today in a note. Still, borrowing costs will probably climb to 4 percent by the end of March, a Bloomberg survey of economists showed. ‘Big Picture’ “The big picture of the RBA taking rates to 4.25 percent by March next year while the Federal Reserve is on hold at close to zero remains supportive of the Aussie,” John Kyriakopoulos, head of currency strategy at National Australian Bank Ltd., said in a note to clients today. “Investor confidence in the strength and durability of global economic recovery was boosted by stronger-than-expected U.S. retail sales.” The U.S. government yesterday said retail sales grew 1.4 percent in October after slumping the most in nine months in September. “The bearish tone on the U.S. dollar is good for commodities and commodity currencies,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. The Reuters/Jefferies CRB Index of 19 raw materials increased 2.8 percent yesterday, the steepest advance since September, as a weaker dollar bolstered the appeal of commodities as an alternative investment and currency hedge. Australian government bonds increased for a sixth day. The yield on 10-year notes fell 11 basis points, or 0.11 percentage point, to 5.46 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due in March 2019 rose 0.807, or A$8.07 per A$1,000 face amount, to 98.510. Benchmark interest rates are 3.5 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. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to interest-rate expectations, extended declines to 4.45 percent today. To contact the reporters on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Source