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imageSYDNEY/WELLINGTON: The New Zealand dollar received a fillip on Thursday after the Reserve Bank of New Zealand (RBNZ) said larger increases in interest rates would be required should mortgage lending limits introduced this week fail to cool the country's housing market.

The comments also underpinned the Aussie dollar which rose to $0.9385, from an overnight low of $0.9334.

The kiwi climbed over half a cent to a peak of$0.8340 after RBNZ Governor Graeme Wheeler said in an opinion piece published by the New Zealand Herald that rates may rise by 2 percentage points between 2014 and 2016.

That sent the New Zealand currency to session highs against most major currencies. It bounced off three-week lows on the yen to 81.05, showing a gain of more than a yen.

A rise in the kiwi above $0.8341 would open the way for a test of September's peak of $0.8445. Strong technical support was seen around $0.8180-$0.8200, where its 21- and 200-day moving averages lay.

It trimmed losses against a racy euro which rallied broadly after the European Central Bank gave no hint it was considering further easing. The euro rose to a three-week high of NZ$1.6515, before pulling back to NZ$1.6377 after the RBNZ comments.

Against the Aussie dollar, the common currency gained a cent and a half to A$1.4490 but was still down 0.2 percent for the week.

A more aggressive tightening campaign in New Zealand would further widen the kiwi's yield advantage, given that rates in the United States and other countries are hovering near zero.

"It's putting pressure on the rates curve, and increasing carry for the New Zealand dollar," said Sam Tuck, currency strategist at ANZ in Auckland.

The RBNZ is widely expected to raise its official interest rate in the first quarter of 2014 to tame inflation pressures emanating from the hot housing market.. Markets have priced in roughly 70 basis points of tightening in the next 12 months.

Further underpinning the Aussie and kiwi dollars was an upbeat reading of China's non-manufacturing activities.

The much-higher than expected figure reassured investors about the economic recovery in China, a top export market for both Australia and New Zealand.

The Aussie has key resistance above $0.9400 with traders citing buyers ahead of $0.9430. Support was seen at $0.9326, its 21-DMA, ahead of $0.9307.

It is up nearly one percent since Monday as markets pared back chances of further monetary easing by the Reserve Bank of Australia (RBA). Financial market simply only a one-in-3 chance of a cut by December.

The central bank left interest rates at a record low of 2.5 percent on Tuesday but surprised some market watchers by not giving an explicit indication there was room to ease again.

Australian government bonds were mostly steady, with the three-year contract 0.01 tick lower at 97.050, while the 10-year contract was unchanged at 96.100.

New Zealand government bonds were also quiet.

Copyright Reuters, 2013

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