The New Zealand dollar firmed today after an NZIER quarterly survey of business confidence indicated a greater chance of a rate rise this year.
The kiwi jumped to US66.12c, then eased to end the session on US65.88c compared with its US65.50c close yesterday.
ANZ National bank economists said the survey, which showed capacity utilisation had rebounded to near record levels, meant "the threshold for a further interest rate increase has been crossed" and the Reserve Bank will raise rates this month.
"Given recent developments, we believe the risk of a hike (in interest rates) is now greater than 50 per cent, and the Reserve Bank will need a strong reason or calamity at this point to pause," ANZ chief economist Cameron Bagrie said.
The independent NZIER said a net 19 per cent of firms in the survey expected a deterioration in the general business situation in the next six months, the most positive figure for 18 months.
"It caused the kiwi to strengthen," said ANZ Bank chief dealer in New Zealand, Murray Hindley. The main focus was on capacity utilisation which rebounded to near record levels.
"It's put more pressure on the Reserve Bank."
The kiwi strengthened against all currencies.
It was buying A88.45 against the Australian dollar compared with A88.23c yesterday, 0.5232 euro from 0.5195, and 78.55 yen from 78.05. The trade weighted index was at 66.70 from 66.32.
Finance Minister Michael Cullen commenting in parliamentary questions today on an earlier comment that the Reserve Bank was not expected to tighten rates again this cycle, helped the kiwi ease back.
Mr Hindley said all eyes would be on labour force survey next month.
He said the kiwi had good support around US65.80c and would meet resistance again at US66.20c in the short term.
Meanwhile, the yen hit an eight-month low against the US dollar and also fell versus the euro as traders cited talk of a report that North Korea had conducted a second nuclear test.
The yen, already stung after Pyongyang said yesterday it had successfully carried out an underground nuclear test, was further undermined as market talk circulated about a supposed report by Fox News that a second nuclear test had been completed.
The Fox website did not contain such a report, although the site did mention a story from South Korea's Yonhap news agency on Monday that quoted the country's chief of intelligence as saying it was possible North Korea could conduct a second test.
Some traders said the impact on currencies would not likely be sustained, with the yen also getting a push lower after piercing stop-loss levels against the US dollar.
Japan's proximity to North Korea and reliance on exports to Asia means the yen tends to be hurt by rising tensions between the West and the reclusive Stalinist country.
Reuters currency rates:
5pm today 5.40pm Monday
NZ dlr/US dlr US65.88c US65.50c
NZ dlr/Aust dlr A88.45c A88.23c
NZ dlr/euro 0.5232 0.5195
NZ dlr/yen 78.55 78.05
NZ dlr/stg 35.30p 35.00p
NZ TWI 66.70 66.32
Australian dollar US74.47c US74.23c
Euro/US dollar 1.2587 1.2605
US dollar/yen 119.22 119.17
- NZPA
<i>Currency:</i> NZ dollar firms after rate rise indication
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