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Australian, N.Z. Dollar Rise Amid China Manufacturing Prospects

The Australian and New Zealand dollars rose, erasing earlier losses, after a private report showed Chinese manufacturing may expand at a faster pace, boosting trade prospects.

The so-called Aussie climbed to a nine-month high against the yen, while the kiwi reached the strongest level since October 2008 versus Japan’s currency on speculation the country’s elections this weekend will lead to a government that will increase pressure on the Bank of Japan to expand monetary stimulus. Demand for the South Pacific nations’ dollars was limited as a standoff in U.S. budget negotiations sapped investor appetite for risk.

The Chinese manufacturing data in December “is a slight improvement from the previous month and it’s continuing to suggest that Chinese growth is stabilizing,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “The reaction has been quite muted on the Aussie. What is perhaps offsetting its gain is that financial markets in general are still concerned about the outcome of negotiations in the U.S. in regards to the fiscal cliff.”

The Aussie added 0.1 percent to $1.0544 as of 4:32 p.m. in Sydney from yesterday, after earlier sliding as much as 0.2 percent. It’s set for a 0.5 percent weekly gain, having touched $1.0586 on Dec. 12, the strongest since Sept. 14. It climbed 0.4 percent to 88.45 yen, after touching 88.47, the highest since March 20.

New Zealand’s currency, known as the kiwi, rose 0.2 percent to 84.46 U.S. cents from yesterday when it reached as high as 84.61, the most since Feb. 29. It gained 0.5 percent to 70.85 yen, after reaching 70.86, the strongest since October 2008.

The yield on Australia’s 10-year government debt rose as much as nine basis points, or 0.00 percentage point to 3.39 percent, the most since Sept. 18.

Chinese Manufacturing

A report from HSBC Holdings Plc and Markit Economics indicated Chinese manufacturing expanded at a faster pace in December. The preliminary reading for the purchasing managers’ index rose to 50.9 from 50.5 the previous month, above the 50 level that indicates expansion.

That compared with the median estimate of 50.8 in a Bloomberg News survey of economists. China is Australia’s biggest trading partner and New Zealand’s second-largest export market.

Unlimited Stimulus

Japan’s Shinzo Abe, whose opposition Liberal Democratic Party leads in opinion polls before the Dec. 16 ballot, has called for a doubling of the central bank’s inflation goal to 2 percent and unlimited easing to revive growth.

The BOJ said today its Tankan index for sentiment among large companies fell to minus 12 in December from minus 3 in September, a fifth-straight negative reading and the lowest since March 2010.

The Australian dollar has risen 0.7 percent so far in 2012 according to Bloomberg Correlation-Weighted Index. The kiwi dollar’s 6.5 percent advance over the same period is the best performance among the 10 developed-market currencies tracked by the gauges. The yen has lost 12 percent, the biggest loser.

In the U.S., Republicans and Democrats remain deadlocked over how to avoid more than $600 billion in tax increases and spending cuts that will take effect from January unless Congress averts them, a scenario that threatens to throw the world’s biggest economy back into recession.

The U.S. budget standoff has “probably contributed to the Aussie coming off a little,” said Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. “I’m not overly convinced that both currencies are going to continue moving up against the U.S. dollar.”

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