Dollar jumps above $US88c after Fitch upgrades outlook to positive

The New Zealand dollar jumped above the 88 US cent level it has been flirting with for the past few weeks after credit ratings agency Fitch Ratings reaffirmed the country's AA rating and upgraded its outlook to positive from stable.

The kiwi reached 88.05 US cents overnight, its highest level since August 2011 when it touched a record 88.40 cents. The local currency was trading at 87.83 US cents at 8am in Wellington, from 87.63 cents at 5pm yesterday. The trade-weighted index rose to 81.64 from 81.51 yesterday.

The New Zealand dollar has gained almost 6 cents against the US dollar so far this year as investors are lured by higher interest rates in an expanding stable economy. The central bank has increased the benchmark interest rate three times this year to 3.25 percent and is expected to hike again this month in an attempt to slow inflation, in comparison with most other major economies where interest rates remain at record lows.

"As one of the only two currencies with any appreciable yield in the advanced industrialised universe, the kiwi has been the darling of the yield chasers and (the) upgrade by Fitch will only serve to reinforce its strength," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note. "With a 3.25 percent yield and a reaffirmed AA rating, the NZD/USD remains one of the pre-eminent credits in the G-20 basket and (the) unit should remain well bid for the foreseeable future especially if the economic data does not show much deteriorating from the high exchange rate and US 10-year yields remain depressed below (the) 2.75 percent mark."

The kiwi's breakout above the key 88 cent figure puts the highs of 2011 "squarely in view", Schlossberg said.

"The high price of the currency is sure to raise the ire of RBNZ," he said.

Today, Reserve Bank governor Graeme Wheeler is speaking at a breakfast gathering in Auckland, although the speech won't be released for publication. Deputy governor John McDermott is speaking to the Wellington Employers' Chamber of Commerce on the concept of potential output and its place in the monetary policy framework of an inflation targeting central bank. He will also discuss broad drivers of growth in potential output and the best contribution that monetary policy can make towards strong growth. His speech will be released publicly at 10am.

The New Zealand dollar rose to 93.46 Australian cents from 93.35 cents yesterday, increased to 64.55 euro cents from 64.41 cents, gained to 51.28 British pence from 51.16 pence and was little changed at 89.22 yen from 89.21 yen.

(BusinessDesk)