Rising on their strongest levels since May, the Australian and New Zealand dollars have recorded early gains today as interest rates talk and an improving global economic outlook spread optimism in the market.

The higher demand for higher yielding assets pushed up Australia's currency and traded at 89.45 U.S. cents as of 9:05 a.m. in Sydney from 89.57 cents in New York late last week. It reached 89.71 on July 23, the most since May 14. The currency fetched 78.30 yen from 78.33 yen.

New Zealand's dollar bought 72.65 U.S. cents from 72.73 in New York on July 23. The kiwi gained to as much as 73.03 cents on July 15. Analysts said the Australian dollar is influencing the pattern of growth of the Kiwi

Last week, the Aussie rose 3.1 percent last week after the Dow Jones Industrial Average almost wiped out its 2010 losses because earnings at U.S. companies beat estimates and European regulators said seven out of 91 lenders failed stress tests.

Interest rates

Meanwhile the Australian dollar also received a boost after Glenn Stevens, governor of the Reserve Bank of Australia, said the central bank would raise interest rates next month if needed, notwithstanding the country's general elections scheduled next month.

Australia's statistics bureau will report second-quarter consumer prices on July 28, but economists are optimistic that it rose at the fastest pace since the three months ended September 2009.

Benchmark interest rates are 4.5 percent in Australia and 2.75 percent in New Zealand, respectively, compared with 0.1 percent in Japan and as low as zero in the U.S., thus, attracting investors to the South Pacific nations' higher-yielding assets. The risk in such trades is that currency market moves will also easily diminish profits.