The RBNZ extended the transition period for banks to increase their capital from five to seven years.
Although it kept the tier 1 capital requirement for the big four banks at 16 per cent of risk-weighted assets, up from 8.5 per cent currently, it will allow 2.5 per cent to be preference shares rather than pure equity, significantly lowering the costs to the banks.
New Zealand's largest bank, ANZ Bank, for example, said it will now need to find about A$3 billion ($3.1b) in fresh equity, in addition to the A$1.5b in profits kept in NZ this year.
That's well below its estimate a year ago of A$5.7b to A$7.7b based on the original proposals announced a year ago.
"The New Zealand dollar surged when the Reserve Bank announced it's capital review because a key domestic risk has been reduced," said Peter Cavanaugh, the senior client advisor at Bancorp Treasury Services.
Weaker-than-expected data in Australia, including flat retail sales and a lower trade surplus in October, caused the kiwi to spike temporarily.
"Given the string of disappointing data out of Australia, this is another straw on the camel's back, but it won't be the last one," Cavanaugh said.
It also appears the New Zealand dollar will benefit from any news about the on-again, off-again US-China preliminary trade agreement, regardless of whether it's positive or negative.
While Bloomberg is reporting Washington and Beijing are edging closer to a deal, that came just a day after US President Donald Trump said he may delay a trade deal with China until after the US 2020 presidential election.
"New Zealand's got such a good story" on the economic front relative to the rest of the world, Cavanaugh said. "The New Zealand dollar seems to be a favourite on both sides,"
"The speculators are so short, they won't want to be selling it any further and there's a risk they might take profits before Christmas." If that happened, it would push the kiwi higher.
The New Zealand dollar was trading at 95.55 Australian cents from 95.24 this morning. It was unchanged at 58.93 euro cents, at 49.81 British pence from 49.85, at 71.12 yen from 71.07, and at 4.6093 Chinese yuan from 4.5994.
The two-year swap rate climbed to a bid price of 1.1914 per cent from 1.1567 per cent yesterday while 10-year swaps rose to 1.6000 per cent from 1.5575 per cent.
