June 26 (Bloomberg) -- The Australian dollar rose after China repeated its call for a new reserve currency, weakening the greenback against major rivals.

Australia’s dollar also strengthened amid signs of a global economic recovery. New Zealand’s dollar fell against the yen after the statistics bureau said gross domestic product declined 1 percent last quarter, exceeding the median estimate for a 0.7 percent contraction in a Bloomberg News survey.

“China’s call for a new reserve currency continues in the background, reminding people this is not a dead issue yet,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon Corp., the world’s largest custodial bank. “Investors in general are moving toward risky assets.”

Australia’s currency gained 0.6 percent to 80.74 U.S. cents at 2:33 p.m. in New York, from 80.25 cents yesterday. It lost 0.3 percent to 76.78 yen. New Zealand’s dollar was little changed at 64.62 U.S. cents and slid 0.7 percent to 61.45 yen.

The U.S. dollar dropped against most of its major counterparts today after China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves.

Australia’s dollar may strengthen to as high as 86 U.S. cents by the end of the third quarter as “risk appetite” improves across the board, said Sharada Selvanathan, a currency strategist at BNP Paribas SA in Hong Kong.

Target Lending Rates

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’ assets. The risk in these so-called carry trades is that currency market moves can erase profits.

“With equity markets remaining stable, investors are happy to put their money to good use,” said Selvanathan. “The Aussie will do well.”

New Zealand may face a “fragile” recovery, the Reserve Bank’s Governor Alan Bollard said after deciding on June 11 to leave the nation’s benchmark interest rate unchanged for the first time in a year.

“This is the fifth negative quarter, and the second quarter is also on track for a drop, so the green shoots in the New Zealand economy are fragile,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Data like this does support Bollard’s warning that benchmark rates may still come down and will remain low for some time.”

The New Zealand dollar may drop toward 63 U.S. cents and will find sellers at 64.80 cents in the coming days, Hampton said. The Australian dollar may trade between 79 and 80.60 U.S. cents, she said.

Australian government bonds rose for the first time in three days. The yield on the benchmark 10-year note fell nine basis points, or 0.09 percentage point, to 5.60 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due in March 2019 climbed 0.633, or A$6.33 per A$1,000 face amount, to 97.373.

To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

Last Updated: June 26, 2009 14:40 EDT