The kiwi surged against the aussie dollar today following hawkish statements from the Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard in his quarterly Monetary Policy Statement this morning.
Dr Bollard increased the Official Cash Rate (OCR) to 5.75 per cent from 5.5 per cent as expected. But it was his accompanying statement which piqued the market's interest.
Dr Bollard signalled there would be two further rate hikes this year and that inflation could push through the 3 per cent mark.
BNZ's manager of foreign exchange Mike Symonds said the tone of the comments came as a surprise.
"The RBNZ was more hawkish than most people anticipated and as a consequence of that we've certainly seen good demand for the kiwi -- particularly on some of the crosses. The kiwi/aussie cross in particular being a focus of attention," he said.
At 5pm the kiwi was buying A90.62c (from A89.38c at 5pm yesterday), it's highest closing level since April last year.
Westpac chief currency dealer Basil Payn said the interest rate hike, coupled with disappointing employment data out of Australia this afternoon had helped push the kiwi/aussie cross.
"That's pushing the thought out there that the interest rate differential between NZ and Australia is going to blow out further which is really going to push that cross quite high in the kiwi's favour," Mr Payn said.
He expected the kiwi to remain strong against the aussie and said it could test A91c to A92c.
The strength of the kiwi against the Australian dollar also helped push the kiwi up against the greenback.
At 5pm the kiwi was buying US62.47c from US61.69c at 8.30am this morning.
Mr Payn said the kiwi was sitting around US61.75c before Dr Bollard spoke this morning but moved up over US62c soon after his announcement.
Meanwhile, at 5pm the Australian dollar was at US68.95c (US69.73c at 5pm yesterday).
Mr Symonds said the kiwi was expected to continue to perform well against all its crosses in the near term, including the US dollar, due to the expectation of further rate rises.
But the kiwi's performance against the greenback is still likely to be dictated by broader issues than local interest rates.
" In terms of the kiwi on an outright basis against the US we still hold the view that it's going to be the US dollar's moves that are going to hold sway with the kiwi rather than kiwi specific events," Mr Symonds said.
Meanwhile at 5pm the US dollar was trading at 109.71 yen (109.07), and the euro was buying US$1.2053 (US$1.2237).
On the crosses, the kiwi was buying 0.5718 euros (0.5111), 34.16 British pence (34.07), 68.55 yen (68.23), 0.7836 Swiss francs (0.7759).
The trade-weighted index was at 63.89 (63.57), while the monetary conditions index was at plus 467 (438).
On the money market, 90-day bank bill yields were at 6.05 per cent (6.01), February 2006 bonds were at 6.00 per cent (5.91), July 2009s were at 6,21 per cent (6.15) and April 2013s were at 6.36 per cent (6.29).
- NZPA
<i>Currency:</i> Kiwi storms up against Aussie following rate hike
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