Currency: Dollar climbs on OCR decision

The New Zealand dollar rose today and so did wholesale interest rates off which some home mortgages are priced in the wake of the Reserve Bank of New Zealand's (RBNZ) Monetary Policy Statement.

The RBNZ left the official cash rate unchanged at 2.5 per cent and left the door open to lower rates, but the talk of "green shoots" here and offshore had traders thinking about rate rises.

Monetary conditions effectively tightened on a day the central bank left rates unchanged. Economists said the central bank would not be happy about this.

The NZ dollar rose to US63.72c at 5pm, from US63.10c at the same time yesterday. The currency was around US62.60c just before the statement and quickly moved to US63c then kept on posting gains as the day went on.

The move higher came as the US dollar weakened as investors awaited an auction of 30-year US Treasuries.

"Firstly the RBNZ didn't cut rates and also the green shoots talk did drive some support for the kiwi," said BNZ Capital currency strategist Danica Hampton.

Even though the central bank was at pains to point out interest rates would remain low, traders started to think the next move may be higher, she said.

The higher NZ dollar will reduce returns to exporters.

There was also a strong move higher in the interest rate market today. The two-year swap rate rose 25 basis points to near 3.85 per cent and the three-year rate rose 23 points to 4.56 per cent. The five-year rate rose to 5.32 per cent.

ANZ economist Philip Borkin said the rise in wholesale interest rates was quite substantial.

"The market has priced out any chance of a cut in interest rates and is beginning to price in rate hikes by the start of next year," he said.

The central bank wanted to keep rates low until the second half of 2010.

He said the RBNZ was concerned that the higher NZ dollar could delay a recovery but added: "We didn't think the RBNZ would get too much traction in currency markets. It is really offshore that is driving the moves".

Home mortgage rates were being determined by competition for domestic deposits, rather than the level of the official cash rate. Deposit rates were high relative to lending rates.

The NZ dollar was trading at A78.55c from A78.25c yesterday. It rose to 0.4535 from 0.4478 against the euro and to 62.32 against the yen, from 61.55.

The trade weighted index rose to 60.20 from 59.66 yesterday.

- NZPA