The New Zealand dollar closed in on last April's record high on a trade-weighted basis as the local economy gathers momentum, fuelling expectations the Reserve Bank will have to hike interest rates to head off future inflation.
The trade-weighted index rose to 79.10 at 8am in Wellington from 78.82 yesterday, the highest since it hit a post-float record 79.39 in April last year. The kiwi was little changed at 83.77 US cents at 8am from 83.70 cents yesterday, having touched 84.32 cents in Northern Hemisphere trading, the highest since late October.
Traders are pricing in 116 basis points of increases to the 2.5 percent official cash rate over the coming 12 months, according to the Overnight Index Swap curve as local economic data shows New Zealand's recovery is accelerating. Upbeat business confidence, retail sales, and property value figures yesterday added to the optimism view of the New Zealand's economy.
"We had business confidence yesterday that was an exceptionally elevated level, the best in 20 years," said Stuart Ive, senior adviser at OMF in Wellington. "Against the US dollar, the kiwi's holding its own, and against everything else we're reaching for the sky."
OMF's Ive said the Reserve Bank's policy review at the end of the month will be closely watched to see whether governor Graeme Wheeler will hike interest rates early, and next week's inflation data will be a key report informing that decision.
