The New Zealand dollar rose to a nine-month high on a trade-weighted basis after Reserve Bank governor Graeme Wheeler kept the benchmark interest rate unchanged and warned about the threat of inflation in the housing market.
The trade-weighted index rose as high as 74.15, the highest since February 20, and traded at 74.03 at 5pm in Wellington from 73.52 yesterday.
The kiwi advanced to 82.87 US cents at 5pm from 82.55 cents at 8am and 82.48 cents yesterday.
Mr Wheeler kept the official cash rate at 2.5%, as expected, and said on the current projections it is not going to move until the end of 2013.
The bank warned on Auckland's property market, which is heating up, and sharpened the new governor's focus on inflation.
The Reserve Bank is forecasting annual inflation to stay near the bottom of the band in the next year, rising to 2% in the March 2015 quarter as building activity ramps up and as the currency starts running out of steam.
"This really confirms he is an inflation hawk. It's mostly about inflation," says Imre Speizer, market strategist at Westpac Banking in Auckland. "I'm bullish on the kiwi for the next few days."
He says the currency may break above 83.10 US cents and test 83.55 cents in Northern Hemisphere trading.
The central bank has been under increasing pressure to cut the benchmark rate in a bid to stoke economic growth and bring down the kiwi dollar and has had to weigh that up against an Auckland property market that is heating up.
Mr Wheeler says the kiwi is a "significant headwind, restricting export earnings and encouraging demand for imports".
The bank has changed its view on its projections for the currency, and sees it holding above 73 on a trade-weighted basis until December 2013, and falling to 71.40 in early 2015.
The kiwi rose to 79.19 Australian cents from 78.71 cents yesterday after government figures showed unemployment across the Tasman unexpectedly fell to 5.2%.
It rose to 68.38 yen from 67.80 yen yesterday and advanced to 63.50 euro cents from 62.90 cents. It gained to 51.52 British pence from 51.19 pence yesterday.