Currency: Kiwi spikes on hawkish rate outlook

The kiwi shot higher against the US dollar and other major currencies today after the Reserve Bank this morning surprised many forex players with a hawkish Monetary Policy Statement (MPS).

The kiwi spiked as high US71.71c from its low earlier in the morning of US70.30c following the 9am release of the MPS. Reserve Bank Governor Allan Bollard as expected left the Official Cash Rate unchanged at 6.5 per cent but held out little hope of rate relief next year.

But by the local close the kiwi had come back to US71.17c compared with US71.38c at 5pm yesterday.

An Auckland dealer said he was surprised the market was positioned in such a way that the kiwi surged so much on the bank's statement.

"It's hard to see that they could say anything else.

"It was a no-brainer in the sense that they had no choice to reiterate that when you've got unemployment at 3.8 per cent you're not in a position to be easing."

Meanwhile the kiwi also rose on the other crosses, at 5pm buying A94.04c (A93.15c at 5pm yesterday) 0.5353 euro (0.5329), 36.91 British pence (36.76) 74.22 yen (73.63) and 0.8204 Swiss francs (0.8165).

The Australian dollar was at US75.70c from US76.65c at 5pm last night. Australia's central bank left that country's key lending rate unchanged at 5.25 per cent.

The British and Swedish central banks are also set to meet this week, but are also expected to keep interest rates unchanged. In contrast, the US Federal Reserve is set to meet next week and is widely expected to raise rates by a quarter percentage point to 2.25 per cent.

This afternoon the US dollar was buying 104.27 yen (compared to 103.11 yen at 5pm yesterday), and the euro was trading at US$1.3298 (US$1.3399).

The trade-weighted index was at 69.11 (68.88) and the monetary conditions index was at plus 928 (906).

Todays rate call moved the money markets with 90-day bank bill yields rising to 6.72 per cent (6.68), February 2006 bonds were on 6.28 per cent (6.23). The July 2009s were at 6.00 per cent (5.95) and April 2013s were at 5.98 per cent (5.95).

- NZPA