By Theresa Barraclough and Garfield Reynolds Nov. 18 (Bloomberg) -- The Australian and New Zealand dollars fell for a second day after U.S. industrial production growth slowed, discouraging demand for higher-yielding assets. Australia’s currency trimmed this month’s gain to 3.1 percent as traders pared bets that the Reserve Bank of Australia will raise borrowing costs at its next meeting. Investors “unprepared” for the possibility Australia’s central bank will leave interest rates unchanged on Dec. 1 may need to reconsider bets on the Aussie dollar, according to Royal Bank of Canada. “For today, we suspect the backdrop of soft equity markets and easing risk appetite will keep the New Zealand dollar gains capped below 75 U.S. cents,” Mike Jones, a currency strategist in Wellington at Bank of New Zealand Ltd., wrote in a research note today. “Initial support is seen toward 74.10 cents.” Australia’s currency fell 0.2 percent to 92.87 U.S. cents at 4:13 p.m. in Sydney, compared with 93.06 cents in New York yesterday. It touched 94.06 cents on Nov. 16, the strongest since Aug. 1, 2008. The currency declined 0.3 percent to 82.78 yen from 83.06 yen. New Zealand’s dollar slipped 0.1 percent to 74.44 U.S. cents, compared with 74.53 cents yesterday. The so-called kiwi fetched 66.35 yen from 66.54 yen. The MSCI Asia Pacific Index fell 0.2 percent today, reversing early gains. U.S. industrial production increased 0.1 percent last month after a 0.6 percent advance in September, the Federal Reserve reported yesterday. The median forecast of 75 economists in a Bloomberg survey was for a 0.4 percent gain. Hourly Wages Australian hourly pay rates excluding bonuses climbed 0.7 percent in the third quarter from the previous three months for an annual increase of 3.6 percent, the statistics bureau said today in Sydney. The data were in line with economist estimates. “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 yesterday 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. Futures markets show a 71 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. ‘Unprepared’ “With the rates market already priced for over 100 basis points of hikes over the next four meetings and unprepared for the possibility of a pause in the near future, RBA meeting minutes were seen as less hawkish than expected,” Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney, wrote yesterday in a note to clients. 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, rose for the first time in six days, adding 0.1 percent to 4.46 percent. Australian government bonds rose for a seventh day. The yield on 10-year notes fell one basis point to 5.48 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due in March 2019 rose 0.058, or 58 Australian cents per A$1,000 face amount, to 98.339. 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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