NZ dollar up following Reserve Bank inaction

A New Zealand One Dollar Coin. NZHerald Photograph by Greg Bowker

The New Zealand dollar gained after the Reserve Bank failed to add any new measures to curb housing market strength yesterday as some had expected, prompting a pull-back in bets for lower interest rates.

The kiwi rose to 68.24 cents at 8am in Wellington, from 67.92 cents at 5pm yesterday. The trade-weighted index advanced to 72.68 from 72.49.

The local currency has jumped 1 percent since the Reserve Bank yesterday published its six-monthly financial stability report, which said it's "closely monitoring" developments in the housing market but stopped short of detailing plans for new measures.

See live rates for the NZ-US $ below. Click for more information:

That disappointed some traders who had interpreted comments by Finance Minister Bill English the previous day as a signal that the Reserve Bank would announce further housing market restrictions which they anticipated would free up Governor Graeme Wheeler to reduce interest rates further.

"While most didn't expect any fresh measures, the previous day the market sold the New Zealand dollar after a published interview with the Finance Minister raised the chance of measures being introduced. We saw the spike up in the New Zealand dollar as an unwinding of that selling," Bank of New Zealand currency strategist Jason Wong said in a note.

"The New Zealand dollar would have likely risen even further had the bank not indicated that further macro-prudential measures were in its sights, although it was an open-ended suggestion with no timetable in mind."

Broad US dollar weakness and a lift in oil had also bolstered the kiwi, Wong said.

Today, traders will be closely watching a pre-Budget speech by Bill English to a Wellington Chamber of Commerce lunch. Data on food prices and the BNZ-BusinessNZ Performance of Manufacturing Index are also due out today.

The New Zealand dollar rose to 92.50 Australian cents from 92.38 cents, gained to 47.24 British pence from 47.01 pence, advanced to 74.01 yen from 73.88 yen, increased to 4.4295 yuan from 4.4235 yuan, and edged up to 59.72 euro cents from 59.67 cents.