NZ dollar holds gains as business confidence, property values fuel rate hike expectations

The New Zealand dollar held gains in local trading as strong business confidence, increased consumer spending and rising property values fuelled expectations the Reserve Bank will hike interest rates to keep a lid on future inflation threats.

The kiwi traded at 83.70 US cents at 5pm in Wellington, little changed from 83.76 cents at 8am, and up from 83.31 cents yesterday. The trade-weighted index advanced to 78.82 from 78.41 yesterday.

Investors got more good news on the New Zealand economy today, with the New Zealand Institute of Economic Research reporting business confidence at a 20-year high, government figures showing increased retail spending on credit and debit cards in December, and Quotable Value data reporting a 10 percent increase in the country's annual property values.

The upbeat data supported the Reserve Bank's plans to lift interest rates this year, and traders are betting the official cash rate will rise 118 basis points over the coming 12 months, according to the Overnight Index Swap curve.

"There are plenty of reasons to be reasonably bullish the kiwi at the moment," said Dan Bell, head of corporate sales at HiFX in Auckland. "We're going to have one of the only central banks in the world raising rates."

The local currency was a beneficiary as investors sold the greenback after weaker than expected US jobs data on Friday sapped expectations about the pace of the Federal Reserve's plans to withdraw monetary stimulus.

The weakness in the December US employment figures has been put down the extreme winter conditions that month, and investors will get another steer on the strength of the world's biggest economy when retail sales data is released on Tuesday in Washington.

The local currency rose to 86.53 yen at 5pm in Wellington from 86.20 yen yesterday, and gained to 92.60 Australian cents from 92.22 cents. It climbed to 61.25 euro cents from 60.92 cents yesterday, and gained to 51.08 British pence from 50.48 pence.

(BusinessDesk)