Dollar gets a strong lift from jobs data

The kiwi rose as high as 73.45 US cents.

The New Zealand dollar got a strong lift from positive jobs data but pared the gains late in the day ahead of tomorrow's Reserve Bank's monetary policy review when it may attempt to jawbone the currency lower.

The kiwi rose as high as 73.45 US cents after government data showed a lower-than-expected unemployment rate, and traded at 73.07 US cents as at 5pm in Wellington, up from 72.63 cents in Asia yesterday. The trade-weighted index was little changed at 74.79 from 74.84 yesterday.

New Zealand markets were closed for the Waitangi Day holiday yesterday, avoiding much of the major market volatility of the past two days when stronger US jobs numbers stoked inflation expectations and eroded stock markets around the world.

Things settled down and a resumption of risk appetite coincided with higher dairy prices at the GlobalDairyTrade auction, stoking demand for the kiwi.

The local currency got a further lift when Statistics New Zealand data showed the unemployment rate unexpectedly fell to 4.5 per cent in the December quarter to the lowest level since the December 2008 quarter and below the 4.7 per cent forecast in a Bloomberg poll of 12 economists.

"Risk aversion dissipated very quickly ... overseas markets turned around and said it's all good now," after a global sell-off earlier in the week, said Imre Speizer, senior market strategist at Westpac Banking Corp.

Investors were cheered when the Dow Jones Industrial Average ended up 2.3 per cent.

"Then we had our good jobs data, which gave us another leg up," he said.

Speizer said the kiwi pared some of those gains late in the trading day, which could be due to concern that "tomorrow we may get a strong warning that the kiwi dollar is too high" from the central bank, as the trade-weighted index is around 2 per cent above the RBNZ's projections.

"I think they will to reinstate the currency warning and note that it is too high," he said. If they do, it will hurt the kiwi "but I don't think it will be a major fallout."

He said the monetary policy statement is likely to be a "non-event" against a volatile global backdrop.

"It might sell off a little bit, but then move on." The central bank is widely expected to keep the official cash rate at a record low 1.75 per cent and signal no rate rises on the immediate horizon.

The local currency rose to 79.89 yen from 79.23 yen yesterday and gained to 92.68 Australian cents from 92.18 cents yesterday. It increased to 58.98 euro cents from 58.72 cents yesterday and rose to 52.34 British pence from 52.03 pence. The kiwi traded at 4.5698 Chinese yuan from 4.5648 yuan.

New Zealand's two-year swap rate fell 1 basis point versus Monday's closing level to 2.16 per cent, while 10-year swaps fell 4 basis points to 3.27 per cent.