The New Zealand dollar jumped to a three-week high after the Reserve Bank said interest rates were likely to rise next year, increasing the lure of the nation's higher yielding assets for overseas investors.
The kiwi rose as high as 81.57 US cents early this morning, and traded at 81.39 cents at 8am in Wellington, from 81.30 cents at the 5pm market close yesterday. The trade-weighted index advanced to 76.53 from 76.42 yesterday.
New Zealand Reserve Bank governor Graeme Wheeler yesterday kept the benchmark interest rate at 2.5 per cent and said increases would likely be required next year. The central bank raised its expectations for the 90-day bill track, seen as a proxy for the official cash rate, which traders interpreted as a hawkish move.
"It's most likely that we will be the first developed world central bank to increase rates which is important because in stable times you can get extra yield from owning New Zealand assets," said Sam Tuck, senior manager FX at ANZ New Zealand. "Our economy is doing very well, probably in excess of what other economies potentially are doing so that is generally a good thing for investing in New Zealand assets."
ANZ's Tuck expects the kiwi to consolidate around current levels as it faces strong technical resistance to move higher. At these levels, it is a good time for importers to hedge their currency exposure, he said.
The New Zealand dollar is unlikely to be underpinned today by reports on manufacturing, consumer confidence and house prices.
The local currency touched a three-week high of 88.19 Australian cents overnight after a soft Australian employment report reinforced expectations that the Australian central bank will cut its benchmark interest further, just as New Zealand is poised to raise rates. The kiwi was unchanged at 87.80 Australian cents at 8am in Wellington, from the market close yesterday.
The kiwi was little changed at 80.94 yen at 8amm in Wellington from 80.89 yen yesterday, and gained to 61.21 euro cents from 61.07 cents. It advanced to 51.50 British pence from 51.37 pence yesterday.