The New Zealand dollar rose to its highest in more than two weeks ahead of an expected hike in interest rates by the Reserve Bank today.
The kiwi touched 85.74 US cents overnight, and was trading at 85.53 cents at 8am in Wellington, from 85.48 cents at 5pm yesterday. The trade-weighted index was unchanged at 79.79.
Reserve Bank governor Graeme Wheeler is expected to lift the official cash rate a quarter point to 3.25 percent this morning, although opinion is divided on whether he will affirm his previous expectation from March for 200 basis points of tightening over two years or signal a slower track. Traders will be focused on the bank's 90-day bank bill track, a proxy for the OCR, to gauge whether Wheeler will slow the pace of interest rate rises.
"A 25 basis points OCR hike from the RBNZ today should not surprise many as it is almost fully priced by the market," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "The focus will be on accompanying commentary (especially relating to the NZD) and the published 90-day bank bill track.
"The market now prices not much more than 125bps of OCR hikes in the coming two years," Martin said. "The RBNZ's previously published March MPS 90-day bank bill track implied 200bps of hikes by this time. Even if the RBNZ were to slightly tweak its 90-day track to build in a little near-term flexibility, it will likely still be notably more hawkish than current market pricing."
