NZ dollar gains ahead of RBNZ statement that may point to earlier rate hike

The kiwi advanced to 69.34 US cents as at 8am in Wellington from 69.01 cents late yesterday.

The New Zealand dollar rose ahead of the Reserve Bank's monetary policy statement, which is expected to see the official cash rate kept at 1.75 per cent but with an interest rate hike signalled sooner than in its last MPS three months ago.

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The kiwi advanced to 69.34 US cents as at 8am in Wellington from 69.01 cents late yesterday. The trade-weighted index rose to 75.83 from 75.40.

Economists say that with inflation expectations on the rise and the consumers price index back within the central bank's target zone, RBNZ governor Graeme Wheeler will signal a rate hike as soon as next year.

At the February policy statement, Wheeler said rates could go either way in the future with the looming prospect of new trade barriers creating too many uncertainties for the central bank.

"We expect the RBNZ to keep the OCR on hold at 1.75 per cent but with a stronger signal that the next move will be up," said Imre Speizer, senior markets strategist at Westpac, in a note.

"It will need to acknowledge how conditions have changed in the last three months, with notable positives being the jump in inflation, drop in NZD TWI, and higher dairy prices. We expect OCR projections to be shifted in a hawkish direction, implying a rate hike in late 2018 (compared to late 2019 in March's MPS)."

The MPS is released at 9am and Wheeler holds a media conference at 10am before speaking to Parliament's finance and expenditure select committee at 1pm. The market will get an early update on how inflation is tracking later this morning with the release of the food price index for April. Food prices rose 0.3 per cent in March.

The kiwi rose to 94.18 Australian cents from 93.70 cents. The kiwi gained to 4.7873 yuan from 4.7627 yuan and rose to 79.20 yen from 78.51 yen. It increased to 63.81 euro cents from 63.35 cents and gained to 53.65 British pence from 53.28 pence.