Nov. 2 (Bloomberg) -- Swisscanto Asset Management, which supervises $56 billion of investments, is “limit long” in Australian debt for its high-grade international bond portfolio, on bets the nation’s currency will rise 6 percent.

Swisscanto is also considering buying Australia’s 10-year bonds and selling two-year debt as the nation’s central bank raises interest rates amid an economic recovery, said Andy Anderson, a senior portfolio manager at Swisscanto Asset Management in London where he helps oversee $14 billion in fixed-income assets. The Reserve Bank of Australia is forecast to raise its benchmark rate to 3.5 percent on Nov. 3, according to a Bloomberg News survey.

“At the moment we’re limit long in Australia purely because we think the currency is going to appreciate,” said Anderson. “We’re targeting the 95 to 95.50-cent level against the U.S. -- it’s partly a commodity phenomenon, partly interest rates and partly a U.S.-dollar aversion phenomenon. All three things are in favor of the Australian dollar at the moment.”

Australia’s currency rose 0.2 percent to 90.11 U.S. cents as of 2:09 p.m. in Sydney from 89.97 cents in New York on Oct. 30. Swaps traders are betting central bank governor Glenn Stevens will add almost 2 percentage points to the nation’s 3.25 percent benchmark rate over 12 months, according to a Credit Suisse index.

Australia’s dollar has climbed 35 percent in the past 12 months as investors bet the nation’s commodity exports -- including iron ore, coal and wool -- will benefit from growth in Asia, particularly China. More than half of the nation’s overseas shipments are made up of raw materials.

Australia’s economy will expand 1.5 percent in the 12 months ending June 30, 2010, compared with a May prediction of a 0.5 percent contraction, Treasurer Wayne Swan said today.

Anderson said he was looking for the yield differential in two-year and 10-year government bonds to widen to 90 basis points to enter a so-called flattening trade. The fund manager would then invest to benefit as that gap, which was at 85.7 points today, narrows to about 40 basis points, he said.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: November 1, 2009 23:22 EST