The New Zealand dollar gained as volatility in equity markets failed to spill over into foreign exchange, and the kiwi remained an attractive buy on the prospect of higher interest rates later this month.
The kiwi rose to 86.30 US cents at 5pm in Wellington from 86.03 cents at 8am and 85.92 cents yesterday. The trade-weighted index advanced to 80.52 from 80.31.
Traders are pricing in a 96 percent chance of a rate hike at the Reserve Bank's April 24 meeting, according to the Overnight Index Swap curve. New Zealand's central bank began tightening monetary policy last month as a means to head off the threat of future inflation, putting the country at the front of the cycle compared to its global peers. That makes New Zealand rates attractive, with the yield on the 10-year government bond, at 4.63 percent, more than half a percentage point higher than its Australian equivalent.
"We're going to get another rate hike in the next two weeks" which is still attracting investors, said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's still got a bias to the topside."
Still, ASB's Kelleher said volatility in US stock markets didn't feed into currency markets yesterday, and a diminished appetite for risk-sensitive assets could weigh on the kiwi.
