Dollar hits two-and-a-half year high after RBNZ’s Spencer signals higher kiwi won’t limit rate hikes

RBNZ Deputy Governor Grant Spencer

The New Zealand dollar soared to its highest in more than two and a half years after Reserve Bank deputy governor Grant Spencer signalled to an investment conference in Hong Kong that a higher kiwi won't prevent the bank from future interest rate hikes.

The kiwi touched 86.85 US cents overnight, and was trading at 86.72 cents at 8am in Wellington, from 86.25 cents at 5pm yesterday. The trade-weighted index touched a new post-float high of 80.97, and was at 80.88 at 8am from 80.43 yesterday.

The New Zealand dollar jumped overnight as investors were buoyed by yesterday's better-than-expected trade data showing the highest ever February trade surplus, as the country continues to benefit from exports of primary products. The kiwi accelerated further after Spencer told the Credit Suisse Asian Investment Conference that exporters had adjusted to the high exchange rate, signalling the central bank doesn't plan to hold back on interest rate increases even as the currency accelerates.

The "better than expected trade numbers kept the currency bid but the main catalyst for the move were the comments from RBNZ deputy governor Spencer," Kathy Lien, managing director of FX strategy at BK Asset Management in New York, said in a note.

"While the NZD/USD appreciated more than 7 percent over the past two months, Spencer did not express any renewed concerns about the currency," Lien said. "Instead he said exporters have adjusted to the high exchange rate, which suggests that they don't plan to slow tightening or intervene in the currency as a result of New Zealand dollar strength."

Earlier this month, New Zealand became the first developed country to raise interest rates this cycle, increasing the benchmark from a record low 2.5 percent to 2.75 percent. Traders are betting the central bank will raise the benchmark by a further 118 basis points over the coming 12 months, according to the Overnight Index Swap curve.

In New Zealand today, the Statistics department publishes details on regional gross domestic product at 10:45am.

The kiwi advanced to 93.66 Australian cents at 8am from 93.37 cents yesterday, rose to 88.61 yen from 87.99 yen and gained to 52.19 British pence from 52 pence.

The local currency climbed to 63.09 euro cents from 62.57 cents yesterday as the euro continues to weaken on the expectation the European Central Bank may increase stimulus.

(BusinessDesk)

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