By Candice Zachariahs March 2 (Bloomberg) -- The Australian dollar fell from a one-week high as the central bank said inflation would likely be “consistent” with its target this year, suggesting it may slow the pace of interest-rate increases. The currency retreated after initially touching its strongest level since Feb. 23 as Governor Glenn Stevens raised the benchmark rate to 4 percent. That decision was forecast by 14 of 19 economists surveyed by Bloomberg News. New Zealand’s dollar also declined. “Reading through the statement clearly indicates that the RBA is going to continue with a gradual approach, which was seen as a little dovish,” said David Forrester, a currency strategist at Barclays Capital in Singapore. “Over a six-month basis we prefer to sell Aussie above the 90-cent level and against the Canadian dollar.” Australia’s currency traded at 89.90 U.S. cents as of 4:06 p.m. in Sydney, after reaching as high as 90.31 cents following the rate decision, from 90.09 cents in New York yesterday. The currency traded at 80.36 yen from 80.30 yen. New Zealand’s dollar weakened 0.4 percent to 69.67 U.S. cents from 69.97 cents yesterday, when it advanced to 70.17 cents, near a one-week high. It bought 62.27 yen from 62.36 yen. Investors should sell rallies in the Australian currency toward C$0.95 versus Canada’s dollar, Forrester said. It traded at C$0.9379. The Bank of Canada meets today and is forecast to keep its target rate at 0.25 percent, according to 22 economists in a Bloomberg News survey. Two-Year Notes Lending costs for most borrowers “remain lower than average,” RBA Governor Stevens said today in Sydney. “The board judges that, with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.” Advances by the currency, the best performer over the past 12 months against the U.S. dollar among its 16 most-traded counterparts, also have helped damp inflation, the bank said. The yield on two-year Australian bonds, which is sensitive to interest-rate expectations, rose one basis point to 4.60 percent, according to data compiled by Bloomberg. The 10-year yield fell four basis points to 5.39 percent. Home Building Weakens Australia’s currency also weakened after a government report showed home-building approvals declined for the first time in five months. The number of permits granted to build or renovate houses and apartments decreased 7 percent in January, the Bureau of Statistics said today. “Rallies in the Australian dollar will be sold into,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia. “We remain in a range-trading environment.” The bank forecast that the Aussie will end the year at 85 U.S. cents. Declines in Australia’s dollar were limited on forecasts that the nation’s commodity shipments, a majority of exports, may rebound as China leads a global recovery. Australia’s commodity sales abroad may rise 15 percent to A$187 billion ($168 billion) in the 12 months to June 30, 2011, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. That compares with a revised A$162 billion forecast for this year and the record A$197 billion in 2008-2009. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Source