NZ dollar highest since July 2008

The New Zealand dollar rose to its highest level since July 2008 after higher-than-expected inflation data caused investors to bring forward expectations for New Zealand's first official interest rate hike.

By 5pm the NZ dollar was at US74.63c, up from US73.81c at 8am and US73.99c at 5pm. It rose as high as US74.89c today.

The consumers price index rose 1.3 per cent in the three months to September, taking the annual rate to 1.7 per cent.

While the annual rate of inflation was the lowest for 5-1/2 years, it was still above the median forecast in a Reuters poll of economists which had been for a rise of 1.2 per cent.

The quarterly forecast had been for a rise of 0.8 per cent.

"The CPI came out quite a lot stronger than what the market expected so consequently the market has brought forward a little bit the timing of when it expects the Reserve Bank of New Zealand to start hiking," said BNZ Capital strategist Mike Jones.

The central bank has been rates will not rise until the end of 2010 but investors think it could be at the start of that year.

Mr Jones said the NZ dollar rose to around US74.50c on the data and then the US dollar weakened, which gave the NZ dollar another reason to move higher.

The US dollar also fell to a 14-month low against the Australian dollar after Reserve Bank of Australia governor Glenn Stevens said the Australian central bank took the first step to returning interest rates toward more normal levels last week, when it lifted the cash rate to 3.25 per cent, from 3 per cent.

The NZ dollar rose to 0.4992 euro at 5pm from 0.4970 at the same time yesterday, and held against the Australian dollar at A81.05c from A80.99c, while lifting to 66.79 yen from 65.80. The trade weighted index was 66.79 from 66.37.

Currency rates:

5pm today 5pm yesterday

NZ dlr/US dlr US74.63c US73.99c

NZ dlr/Aust dlr A81.05c A80.99c

NZ dlr/euro 0.4992 0.4970

NZ dlr/yen 66.79 65.80

NZ dlr/stg 46.48p 46.40p

NZ TWI 66.79 66.37

Aust dlr/US dlr 92.06 91.34

Euro/US dlr 1.4949 1.4887

US dlr/yen 89.47 89.97

- NZPA