The Australian dollar strengthened to a record after a government report showed consumer prices increased by the most in five years, giving the central bank more reason to raise interest rates. New Zealand’s dollar earlier advanced to a three-year high against the U.S. currency as an industry survey showed business confidence climbed in April. The South Pacific nations’ currencies were also bolstered on speculation the Federal Reserve will keep borrowing costs near zero at the end of policy meeting today, prompting investors to seek higher-yield assets. “In the short-term I expect more appreciation” of the Australian dollar, said Adarsh Sinha, head of strategy for Group of 10 foreign exchange at Bank of America Merrill Lynch in Hong Kong. “Given that the market doesn’t have much rate rises priced in at least for the next few months, the CPI data is going to have an impact on the short-term curve.” Australia’s dollar climbed to $1.0833 as of 4:03 p.m. in Sydney from $1.0785 in New York yesterday, after rising to $1.0852, the strongest since it was freely floated in 1983. The so-called Aussie gained 0.6 percent to 88.46 yen. New Zealand’s dollar traded at 80.59 U.S. cents from 80.57 cents, after reaching 81.08, the highest since March 2008. The currency appreciated 0.2 percent to 65.83 yen. Consumer prices in Australia gained 1.6 percent last quarter from the previous three months, the biggest jump since 2006, the Bureau of Statistics said in Sydney. Producer prices rose 1.2 percent in the January-March period from the prior three months, the statistics bureau said April 21. Rate Outlook The Reserve Bank of Australia will raise its benchmark rate by 26 basis points in the next 12 months, according to a Credit Suisse Group AG index based on swaps. That compares with a prediction of 21 basis points yesterday. The Fed will leave its target rate for overnight lending between banks at zero to 0.25 percent at the conclusion of a two-day meeting today, according to all 83 economists surveyed by Bloomberg News. “Increasing prices will likely boost market expectations that the RBA will raise interest rates, leading to buying of the Aussie,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The higher-yielding currencies are also being bought on the back of the dollar weakness because of the Fed’s loose policy.” Australia’s dollar will next target $1.10, Yamauchi said. Higher Forecasts Commonwealth Bank of Australia raised its forecast for the Australian dollar, saying the currency will retain its interest- rate advantage over the greenback. The Aussie will reach $1.12 by the end of September, before declining to $1.04 at year-end, Richard Grace, chief currency strategist for the Sydney-based bank, wrote today in a note to clients. Commonwealth Bank previously forecast the currency would weaken to 94 U.S. cents by Sept. 30. Benchmark interest rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. New Zealand’s dollar gained for a second day versus the yen after ANZ National Bank Ltd. said a net 29.5 percent of companies it surveyed said sales and profits would rise over the next 12 months, compared with 14.7 percent expecting an increase in March. The kiwi was also boosted after Fonterra Cooperative Group Ltd. said dairy export volumes climbed to a record last month due to surging demand in Asia and the Middle East. The New Zealand dollar has appreciated 3.2 percent in the past month, the best performer among the 10 most-widely traded currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The Australian dollar has risen 1.7 percent. To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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