NZ dollar gains as jobs growth beats forecasts, stokes rate hike expectations

The New Zealand dollar rose near a two-week high after strong jobs growth in the September quarter fuelled expectations the Reserve Bank will have more reasons to hike interest rates next year.

The kiwi rose as high as 83.90 US cents, the highest since Oct. 24, and traded at 83.78 cents at 5pm in Wellington from 83 cents at 8am and 82.63 cents yesterday. The trade-weighted index advanced to 77.81 from 76.80 yesterday.

New Zealand employment rose 1.2 percent, beating the 0.6 percent expected in a Reuters survey of economists, led by the retail, hospitality and construction sectors, and helped bring the jobless rate down to 6.2 percent in the three months ended Sept. 30. The participation rate climbed to 68.6 percent, its highest level since March 2012, against the backdrop of rising inbound migration.

The upbeat data added to expectations the central bank will hike the official cash rate from its record-low 2.5 percent next year, with traders pricing in 87 basis points of increases in the coming 12 months, according to the Overnight Index Swap curve.

"The market was waiting for data which is specific to the kiwi" and when the jobs numbers came out it edged up, said Stuart Ive, senior client adviser at OM Financial in Wellington. "The kiwi's got the possibility to edge a little higher from here back up into the 84s, but it might become a little tougher after that."

US employment numbers on Friday in Washington are the key event for traders, who are gauging the strength of recovery in the world's biggest economy.

OM Financial's Ive said the kiwi is "still at the mercy of their monetary policy at the end of the day."

New Zealand's currency has been trading between 82.50 US cents and 84.50 cents in the past two or three weeks, and would need a weaker US employment figures to break the topside of that range, Ive said.

The kiwi gained to 88.09 Australian cents at 5pm in Wellington from 87.13 cents yesterday ahead of tomorrow's employment figures across the Tasman. The Reserve Bank of Australia yesterday kept its key rate unchanged at 2.5 percent, while saying its currency is "uncomfortably high."

The local currency advanced to 62.03 euro cents from 61.18 cents yesterday ahead of the European Central Bank's monetary policy review on Thursday in Brussels, where the region's monetary authority may start mulling more stimulus in the face of slowing growth expectations.

The kiwi gained to 52.10 British pence at 5pm in Wellington from 51.73 pence yesterday, and increased to 82.69 yen from 81.37 yen.

(BusinessDesk)