The New Zealand dollar rose after figures showed third-quarter employment growth was almost three times as fast as economists expected between July and September, adding to indicators that suggest the economy is in better shape than the central bank had projected.

The kiwi rose to 72.20 US cents as at 5pm in Wellington, from 71.50 cents late yesterday. The trade-weighted index climbed to 77.63 from 77.05.

Employment grew 1.4 per cent in the quarter, outpacing the 0.5 per cent gain expected by the market, while the unemployment rate fell to 4.9 per cent, the first time it has been below 5 per cent since December 2008. The participation rate climbed to a record 70.1 per cent. Yet wage inflation remained subdued, with an unchanged 0.4 per cent increase in the quarter. That comes after whole milk powder surged 19.8 per cent in the GlobalDairyTrade auction overnight.

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"For the Reserve Bank, today's labour market data is likely to have been a little stronger than expected," said Anne Boniface, senior economist at Westpac Banking Corp. "Coming in conjunction with this morning's chunky rise in dairy prices, this means the economy is probably on a firmer footing than the bank anticipated at its last Momentary Policy Statement. Barring major surprises, the improvement in the domestic outlook is unlikely to be enough to dissuade the bank from its long-signalled November rate cut. However, it does make us more convinced that next week's rate cut will be the last in this cycle."


The kiwi didn't move much after the Reserve Bank's quarter survey of expectations showed a pickup in inflation expectations for the next two years in an economy that respondents believe will pick up pace. Expectations for inflation one year out rose to 1.29 per cent from 1.26 per cent three months ago. The two-year ahead figure edged up to 1.68 per cent from 1.65 per cent.

Year-ahead real GDP growth is seen speeding to 2.75 per cent from 2.52 per cent in the previous survey, while the 2-year-ahead rate was lifted to 2.51 per cent from 2.43 per cent.

Also helping boost sentiment for the kiwi, prices soared at the latest dairy auction, with the GDT price index climbing 11.4 per cent. Rising prices were expected because of a drop off in volumes of milk powder on offer.

The kiwi traded at 94.60 Australian cents from 93.74 cents late yesterday, gained to 58.97 British pence from 58.68 pence and was little changed at 65.19 euro cents from 65.20 cents. It rose to 4.8813 yuan from 4.8540 yuan and slipped to 74.87 yen from 74.95 yen.

New Zealand's two-year swap rate rose 5 basis points to 2.15 per cent while the 10-year swaps rose 6 basis points to 2.84 per cent.