Market pricing for a rate cut in November fell sharply when Westpac Bank Bank's chief economist Dominick Stephens said it was no longer expecting a cut.
"The balance of recent domestic data does not justify a cut, global sentiment has improved and overseas central banks have indicated they will pause," he said.
In particular, domestic inflation has been stronger than expected and the housing market is showing signs of life, he said.
Housing data today was positive, with multi-unit homes helping propel the number of new housing consents granted in the past 12 months to their highest level since the October 1974 year.
However, Stephens expects the central bank to be open to future rate cuts and still expects another 25 basis point cut in February "based on our view that global economic sentiment will worsen again."
The kiwi gained because the "Westpac rethink has rocked expectations for a November cut," and it's now 50 per cent priced in, said Stuart Ive, OMF Treasury manager.
Tim Kelleher, the head of institutional foreign exchange sales at Commonwealth Bank of Australia, said today's ANZ business confidence survey may have also given the kiwi some support.
Business confidence improved in October but remains deeply negative and firms' optimism about their own activity continues to fall.
A net 42.4 per cent of the 412 respondents surveyed by ANZ Bank expect general business conditions will deteriorate during the coming year, down from 53.5 per cent in September.
ANZ chief economist Sharon Zollner said the data was a mixed bag but "it appears that the activity indicators are generally finding a floor, in that we saw a mix of rises and falls across the other activity questions. She noted employment intentions were down but investment intentions were up.
The New Zealand dollar was at 49.69 British pence from 49.35. It traded at 92.76 Australian cents from 92.44, at 57.53 euro cents from 57.16, at 69.81 yen from 69.28 and at 4.5240 Chinese yuan from 4.4938 yuan.
The two-year swap rate rose to 1.0225 per cent from 0.9801 per cent late yesterday while 10-year swaps rose to 1.4125 per cent from 1.3975 per cent.
