Dollar jumps to 3-week high against euro ahead of expected RBNZ rate hike

The New Zealand dollar rose to a three-week high against the euro as investors were lured by the higher yield available in New Zealand, where the central bank is expected to hike interest rates tomorrow, while the European Central Bank last week cut rates.

The kiwi touched 62.95 euro cents, and was trading at 62.91 cents at 8am in Wellington from 62.54 cents at 5pm yesterday. The local currency advanced to 85.21 US cents from 84.99 cents yesterday.

The European Central Bank last week cut its key deposit rate to negative and introduced further stimulus in an attempt to bolster economic growth and ward off the threat of deflation. The central bank chiefs of Finland and Slovakia, who both sit on the ECB's 24-member governing council, reiterated that the bank could still do more to support the euozone economy following last week's move. That contrasts with the Reserve Bank of New Zealand, which is expected tomorrow to raise interest rates for a third time and signal further hikes are in the pipeline to head off inflation from a resurgent economy.

"Strength in the New Zealand dollar relative to its European peers was the most notable theme on the crosses overnight," Bank of New Zealand senior market strategist Kymberly Martin said in a note. "All eyes will be on the RBNZ's meeting tomorrow morning. We suspect the RBNZ will show sufficient commitment to its rate hiking process to extend the near-term bounce in the NZD/USD."

The British pound appeared to have been dragged down alongside the euro, Martin said.

The New Zealand dollar touched a two-week high of 50.89 British pence, from 50.55 pence yesterday ahead of a report on the UK's unemployment rate for April.

Today in New Zealand, data is released on electronic card spending for May at 10:45am.

The local currency edged up to 90.90 Australian cents from 90.82 cents yesterday ahead of a report on Australian consumer confidence today. A report on Australian business confidence yesterday showed the measure held steady following the nation's budget.

The kiwi advanced to 87.21 yen from 86.91 yen yesterday. The trade-weighted index gained to 79.54 from 79.26 yesterday.

(BusinessDesk)