Kiwi gains ground after rate rise
The New Zealand dollar has pushed higher against the US dollar following the Reserve Bank's decision to raise the official cash rate form 2.5 per cent to 2.75 per cent.
The kiwi fluctuated between US85c and US84.37c immediately following the central bank's announcement this morning. It was trading at US84.67c at 8am, before the rate rise announcement.
However, the New Zealand dollar had since settled to trade at about US85.20c this morning.
Bank of New Zealand market strategist Kymberly Martin said after the initial ''jerk lower'' it became apparent to the market that there was more to the Reserve Bank's Monetary Policy Statement.
Martin said the Reserve bank signalled the official cash rate could rise to as much as 5 per cent in the next couple of years.
That was a rise of 50 basis points more than the market was expecting over the next two years, she said.
The New Zealand dollar was now trading at its highest level since October last year.
While the kiwi was ''stretched'' against the US greenback there was no reason for the New Zealand dollar to drop in the coming weeks, she said.
However, it was possible the greenback could regain some strength if recent weak economic data was the result of unseasonal weather rather than a slowing economy, she said.
If the US dollar pushed higher the kiwi would drop in comparison.
Martin said she expected the New Zealand dollar to trade between US84.70c and US85.40c for the rest of the day.
Immediately following the Reserve Bank's rate increase this morning OM Financial senior advisor of foreign exchange and derivatives Stuart Ive said a hike was fully priced into the New Zealand dollar and there was no "smoking gun" in the statement.
It was "fairly clever" of the Reserve Bank to say further rate hikes were "data dependent", Ive said.
It gave the central bank the flexibility to pause or continue the tightening cycle depending on economic data.
However, there was nothing new in the Reserve Bank's comments that the economy was moving along "quite nicely", he said.
The kiwi also pushed higher against the Australian dollar to break through A94.80c this morning, from A94.15c.
- Fairfax Media