July 14 (Bloomberg) -- The New Zealand strengthened to a one-week high after central bank Governor Alan Bollard said the nation’s economy will recover ahead of most of its trading partners. Australian’s currency also rose. The New Zealand dollar gained as traders raised bets that the central bank will increase interest rates over the next 12 months as the economy recovers from its worst recession in three decades. Australia’s dollar pared this month’s 2.4 percent decline as a report showed business sentiment turned positive in June for the first time since December 2007. “The upside in the New Zealand dollar is likely to be limited to the 63.50-cent mark,” said Jim Vrondas, a manager at online foreign-exchange dealer OzForex Ltd. in Sydney. “Till we get through the U.S. reporting season, markets may remain a bit cautious on higher-yielding currencies like the kiwi and Aussie,” he said calling the currencies by their nicknames. New Zealand’s dollar advanced 0.3 percent to 63.45 U.S. cents as of 4:33 p.m. in Sydney and earlier touched 63.49 cents, the most since July 7. It gained to 59.16 yen from 58.78 yen. The Aussie rose 0.5 percent to 78.72 U.S. cents from late yesterday in New York. It climbed 0.8 percent to 73.38 yen. Both currencies gained a Asian stocks climbed by the most in almost five weeks as Singapore upgraded its forecast for economic growth and fund manager Barton Biggs said some Asian markets are still attractive. Australia’s dollar may advance towards 78.80 U.S. cents on stronger stocks, Vrondas said. Signs of Recovery “Early signs of a global recovery have now emerged,” Bollard said in notes for a speech today in Napier. “New Zealand looks likely to start recovering ahead of the pack.” Traders raised bets that the central bank will increase its benchmark rates 70 basis points over the next 12 months, according to a Credit Suisse index based on swaps trading. The speech “reinforces our view the RBNZ is done in cutting rates in this cycle,” Sydney-based Sue Trinh, a senior currency strategist at RBC Capital markets, wrote in a note to clients. Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia, 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. Australia’s dollar has been the worst-performer against the dollar and yen in the past five sessions among currencies of the world’s 10 major industrialized nations as tensions continue with China, its biggest trading partner, over the arrest of Rio Tinto Group executive and Australian national Stern Hu. More Information Australian Treasurer Wayne Swan said his nation will press China for more information and ask that Hu’s case be dealt with expeditiously. Hu and three Chinese colleagues were detained in Shanghai July 5 on suspicion of spying for foreign countries, China Foreign Ministry spokesman Qin Gang said last week. The “arrest of a mining firm executive by China potentially marks a major deterioration in bilateral relations,” a team of UBS analysts, led by Zurich-based chief currency strategist Mansoor Mohi-uddin, wrote in a note to clients yesterday. “This could translate to less Chinese investment in Australia which would be negative for the Australian dollar.” An Australian sentiment index, released today, rose 6 points to 4, after holding below zero for the previous 17 months, according to a National Australia Bank Ltd. survey of more than 400 companies questioned between June 24 and 30. A figure above zero shows optimists outnumber pessimists. Australian government bonds fell for a second day. The yield on 10-year notes added six basis points, or 0.06 percentage point, to 5.30 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.465, or A$4.65 per A$1,000 face amount, to 99.644. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.72 percent from 3.69 yesterday.

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