By Ben Levisohn and Paul Dobson Feb. 2 (Bloomberg) -- The Australian dollar slid after the nation’s central bank unexpectedly paused in raising interest rates, spurring demand for other higher-yielding currencies such as the Norwegian krone and South African rand. The Aussie fell against all 16 of its most-traded peers monitored by Bloomberg, dropping to the lowest level in almost six weeks versus the U.S. dollar. Reserve Bank of Australia Governor Glenn Stevens kept the overnight cash rate target at 3.75 percent, confounding the prediction for a quarter-point increase from all 20 economists surveyed by Bloomberg. “Clearly the RBA has managed to change expectations,” said Jens Nordvig, a managing director of currency research in New York at Nomura International Plc. “Brazil, New Zealand, and Norway saw big moves, so that would be consistent with the notion of investors moving into other high-yielding currencies.” Australia’s currency slid 1 percent to 88.21 U.S. cents at 10:18 a.m. in New York, after weakening to 87.81 cents, the lowest level since Dec. 23. It fell 1.2 percent to 79.77 yen. The dollar traded at $1.3938 per euro, from $1.3931 yesterday, when it rose to $1.3853, the strongest since July 8. The U.S. currency was at 90.47 yen, from 90.61, and the yen traded at 126.04 per euro, from 126.24. Stevens became the first central banker among the Group of 20 nations to raise borrowing costs last year, boosting them three times while officials in the U.S., the U.K. and Europe kept benchmark rates at record lows. The difference in rates helped make the Australian dollar the top performer versus its U.S. counterpart from Sept. 1 though yesterday. Rate ‘Surprise’ “It’s a surprise they didn’t hike today,” said Lee Hardman, a currency strategist in London at Bank of Tokyo- Mitsubishi UFJ Ltd. The decision “should help ease some of the downward pressure on the U.S. dollar” because “the market last year got ahead of itself expecting other central banks to tighten more aggressively than the Federal Reserve,” he said. The Aussie will probably depreciate to 85 U.S. cents as markets begin to bet on rate increases by the Fed, UBS AG said. The Swiss bank advised investors sell the Aussie against Norway’s krone before the Norges Bank meets tomorrow. The “risk clearly” is that the Oslo-based central bank surprises by raising borrowing costs, said Mansoor Mohi-uddin, chief currency strategist at UBS in Singapore. The Norwegian central bank will keep its main rate unchanged at 1.75 percent, according to all 16 analysts surveyed by Bloomberg. ECB Meets The European Central Bank meets the following day and will also keep its main rate unchanged, at 1 percent, according to all 55 economists in a separate Bloomberg survey. The Fed’s target rate for overnight loans between banks is in a range of zero to 0.25 percent. Brazil’s real strengthened 0.3 percent against the U.S. dollar to 1.8424. The Brazilian central bank’s main interest rate is 8.75 percent. Options traders are dropping their bearish bets against the Brazilian real at the fastest pace since April as Goldman Sachs Group Inc. says the currency’s biggest slump in 15 months is over because growth is picking up. The currency will rally as much as 6 percent against the dollar by March 31, recovering most of its January tumble, the median estimate in a Bloomberg survey of 19 analysts shows. Goldman Sachs, which called the real the world’s most “overvalued” currency as recently as December as it completed a 33 percent annual gain, and Bank of America Corp. said yesterday it’s time to start purchasing again. Traders had put the odds of an increase in Australia’s rate at 74 percent, according to contracts traded on the Sydney Futures Exchange. Buying Opportunity Borrowing costs in Australia will be “adjusted further” to keep inflation within the central bank’s target range of 2 percent to 3 percent “if economic conditions evolve broadly as expected,” Stevens said in a statement today. That prospect may help make it “unwarranted to shift away from a positive view on the Australian dollar,” Citigroup Inc. said. “Broader risk sentiment appears to be improving and positioning is not stretched,” Todd Elmer, a Citigroup strategist in New York, wrote in a report. The slide may offer a buying opportunity, he said. European stocks rose for a third day on gains by mining companies as commodities prices advanced. The Group of Seven meeting of finance ministers and central bankers this week may discuss the yuan, Japanese Finance Minister Naoto Kan said. Should the currency be brought up, “I will discuss it on the understanding that stable growth in China is desirable for Japan,” he said at a news conference in Tokyo today. China has kept its currency pegged to the dollar since July 2008 to help its exporters. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.

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