The New Zealand dollar gained some traction on yesterday's hike in interest rates despite the fact the Reserve Bank's move had been widely anticipated.
At 5pm the kiwi traded at a 22-month high of US45.71c from its US45.65c level at Tuesday's close, while the aussie hovered at US54.71c, near its US54.73c close Tuesday before the budget announcement.
Richard Marshall of ANZ Investment Bank said the kiwi's strong rise after the rates decision announced yesterday morning was surprising, given that many in the market had picked the Reserve Bank to move by 25 basis points.
The kiwi's range during the day was US45.56/89c.
"There was plenty of buying going on this afternoon but it does seem to be a little bit offered toward the close here," Mr Marshall said.
"I think it will drift off (overnight). The kiwi went up after (the OCR rise), but I think it was a bit discounted so I was surprised it went up to the extent that it did."
There was a very brief initial dip in the kiwi below its prevailing level of US45.60c when the market was disappointed that acting Governor Rod Carr did not hike rates by half a percentage point.
But the hawkish tone of the bank's statement and the promise of further rate rises mollified the market.
Dr Carr said the Reserve Bank projects the Official Cash Rate to peak at 6.5-6.75 per cent by mid-next year from yesterday's new rate of 5.5 per cent.
The Reserve Bank's move put New Zealand's short term rates 375 basis points above those in the US, making the kiwi an attractive proposition as a pure interest play.
The aussie weathered the big surprise in the 2002/03 Australian budget of a deficit of $A1.2 billion ($NZ1.45 billion), particularly as the government met the market's expectations in other respects.
The kiwi rose against all major currencies again, trading by 5pm at A83.59c (A83.39c at Tuesday's close), 0.5078 euro (0.5023), 58.79 yen (58.55), 31.55 pence (31.38) and 0.7394 Swiss francs (0.7306).
The aussie was buying $NZ1.1964 ($NZ1.1990).
The monetary conditions index tightened to minus 371 (minus 391) and 90-day bank bills were at 5.81 per cent (5.83 per cent). The trade-weighted index pushed to a new two-year high of 54.29 from 54.05 at Tuesday's close.
On the debt market yields rose sharply in respond to the bank's hard line on inflation. The April 2004 bond yields rose to 6.26 per cent (6.19 at yesterday's close), the November 2006s to 6.80 per cent (6.69), and the November 2011s to 6.94 per cent (6.89).
- NZPA
<i>Currency:</i> Kiwi rises after well-heralded interest rates hike
AdvertisementAdvertise with NZME.