Nov. 6 (Bloomberg) -- The Australian dollar strengthened, advancing almost 2 percent for the week, as the central bank signaled it will add to two interest-rate increases over the past month because the economy’s expansion will accelerate.

“A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said in Sydney today. New Zealand’s dollar also rose this week against the greenback and yen.

“We still expect them to be moving away from the emergency setting of monetary policy but this statement doesn’t suggest that they’re going to be off to the races,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “Overall what’s happening with risk appetite and commodities will continue to be the dominant driver.

Australia’s currency rose to 91.65 U.S. cents at 1 p.m. in New York from 91.02 cents yesterday. It fell 0.3 percent to 82.31 yen. The currency is set to advance 1.9 percent against the U.S. dollar and 1.5 percent versus the yen this week.

New Zealand’s dollar increased 0.5 percent to 72.47 U.S. cents, advancing 1 percent since Oct. 30. It bought 65.08 yen and has risen 0.6 percent this week.

Gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010, the Reserve Bank of Australia said. Three months ago, it forecast gains of 0.5 percent and 2.25 percent respectively.

‘Lessen Gradually’

Traders pared bets on a December interest-rate rise from the Reserve Bank of Australia after Governor Glenn Stevens said Nov. 3 it was “prudent to lessen gradually” the stimulus provided by low borrowing costs.

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. The risk in such trades is that currency market moves will erase profits.

The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October and employers cut 190,00 workers, compared with a 175,000 drop anticipated by the median forecast of economists surveyed by Bloomberg News, according to today’s Labor Department report.

Australia today sold A$700 million ($637 million) of securities maturing April 2012 at a weighted average yield of 5.02 percent. The so-called bid-to-cover ratio at the auction was 5.5, the most for an Australian bond auction since at least May.

Australian government bonds fell with the yield on 10-year notes up five basis points, or 0.05 percentage point, to 5.60 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.382, or A$3.82 per A$1,000 face amount, to 97.460.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.5 percent from 4.46 yesterday.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ruby Madren-Britton in New York at rmadrenbritt@bloomberg.net

Last Updated: November 6, 2009 13:08 EST