Kiwi gains on lure of higher interest

THE New Zealand dollar has gained with the prospect of higher interest rates.

The kiwi rose to 86.30 US cents at 5pm in Wellington from 86.03 cents at 8am and 85.92 cents on Monday.

The trade-weighted index advanced to 80.52 from 80.31.

Traders are pricing in a 96 per cent chance of a rate hike at the Reserve Bank's April 24 meeting, according to the Overnight Index Swap curve.

New Zealand's central bank began tightening monetary policy last month as a means to head off the threat of future inflation, putting the country at the front of the cycle compared to its global peers.

That makes New Zealand rates attractive, with the yield on the 10-year government bond, at 4.63 per cent, more than half a percentage point higher than its Australian equivalent.

"We're going to get another rate hike in the next two weeks" which is still attracting investors, said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland.

"The kiwi's still got a bias to the topside."

New Zealand business confidence remained upbeat in the first quarter, according to the New Zealand Institute of Economic Research's quarterly survey of business opinion, with a net 52 per cent of firms positive on the outlook for general business.

The kiwi gained to 92.87 Australian cents from 92.63 cents on Monday after the National Australia Bank monthly business survey showed weaker sentiment among firms.

The kiwi also rose to 88.83 yen from 88.57 yen and to 62.78 euro cents from 62.71 cents.

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