NZ dollar rises after employment data

File photo / NZH

The New Zealand dollar took two big steps higher today after the US Federal Reserve eased policy to boost its economy and after employment data suggested this economy was performing better than expected.

The strong New Zealand September quarter employment report hit the market when the US dollar was weak on the expectation that the Federal Reserve may do more to boost the US economy after today unveiling plans to buy US$600 billion in government bonds.

The move to effectively print money undermines the US dollar.

The NZ dollar spiked to US78.85c, its highest level since May 2008, after Statistics New Zealand said the unemployment rate fell to 6.4 per cent in the September quarter and employment increased by 23,000, or 1 per cent. The increase in employment was twice what the market was expecting.

It was US78.49c at 5pm from US77.85c at 8am and US77.08c at 5pm yesterday.

"It has all gone the kiwi dollar's way this morning," said Mike Jones, currency strategist at BNZ.

The unemployment rate was more than the 6.2 per cent the Reserve Bank of New Zealand (RBNZ) was expecting but less than the 6.7 per cent the market was expecting.

"It is really a surprise for the market, rather than the RBNZ," Mr Jones said.

The two-year swap rate rose to 4.05 per cent from 3.95 per cent.

Mr Jones said the RBNZ was expected to raise the official cash rate in March next year. Today's data did not change that expectation but it removed a risk that the tightening could be pushed back.

Meanwhile, the policy easing by the Fed was a touch more than people were expecting. The US dollar remained weak because the Fed left the door open for even more purchases of government securities next year.

The move comes after republicans gained ground in the US mid-term elections, further complicating the debate about US economic policy direction.

The Australian dollar was also strong today but came under pressure from slower than expected growth in retail sales.

The NZ dollar rose against the Australian dollar after the employment data but then drifted lower to be A78.06c by 5pm from A77.28c at 5pm yesterday. It also gained to 63.42 yen from 62.21.

Against the European currency, the NZ dollar was higher at 0.5552 euro from 0.5501 at 5pm yesterday, while the trade weighted index rose to 68.92 from 67.98.

- NZPA