NZ dollar surges on OCR statement

The New Zealand dollar surged today after the Reserve Bank of New Zealand shifted its position on when interest rates may rise.

The NZ dollar was US72.38c at 5pm, up sharply from the US70.93c at 8am before the central bank's announcement at 9am. It traded as high as US72.55c today and was at US70.83c at 5pm yesterday.

The central bank kept the official cash rate at 2.5 per cent but what it said about the future was seen as a sea change.

Since April the central bank has held the "language" that rates would not rise before the end of 2010. It was resolute that the market was wrong in anticipating anything else, said Westpac senior market strategist Imre Speizer.

In his statement today, Reserve Bank Governor Alan Bollard said that if the economy continued to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010.

Significantly the bank also put "conditionality" on the new time frame to leave its options open. "Now they are saying it is all about the data. If the data gets better then expect hikes earlier," Mr Speizer said.

The two-year swap rate rose 23 basis points to 4.57 per cent, indicating that the wholesale money market is already anticipating a rise in interest rates.

The Australian dollar also jumped after jobs data spurred investors to sharply raise bets the Reserve Bank of Australia will lift interest rates at its next policy meeting.

The Australian dollar rose to US91.46c by 5pm from US91.04c before the data.

The New Zealand dollar was at A79.12c at 5pm from A78.08c at the same time yesterday and rose to 63.70 yen from 62.63 yen. It was at 64.88 on the trade weighted index from 63.65 yesterday.

- NZPA