NZ dollar rises then eases after RBNZ statement

The New Zealand dollar rose strongly to just short of post-float highs set in May today and then eased back in a mixed reaction to the Reserve Bank of New Zealand's (RBNZ) monetary policy statement.

Analysts said forecasts in the statement implied higher rate rises in the future than expected but the NZ dollar eased back after RBNZ governor Alan Bollard observed that the market had slightly overreacted.

The Australian dollar also came under pressure in reaction to weaker than expected employment data.

The NZ dollar rose as high as US82.42c in early afternoon trading from US81.52c at 8am but was back at US81.96c at 5pm. This compared to US81.78c at 5pm yesterday.

The RBNZ left the official cash rate unchanged at a record low of 2.5 percent, as expected, but investors focused on an accompanying assessment of the economy and a forecast track of 90-day bank bill rates in the statement.

"There was a general recognition from the RBNZ that the economy was on a surer footing relative to its thinking back in March and secondly there was a much stronger interest rate forecast," Mike Jones, strategist at BNZ said.

The forecasts imply the official cash rate could be 220 basis points higher by the end of next year.

"That's whole lot more interest rate juice to support the currency," he said.

He said BNZ had been hawkish in expecting a rate hike by December and was sticking with it but there was a chance of a hike in September.

"The market received a bit of a wake up call," he said.

The two-year swap rate rose 10 basis points to 3.45 percent.

In answer to a question when presenting today's statement, Dr Bollard said "we forecast a 90-day track that is consistent with a picture of official cash rate increases at some stage over the next year".

"The market track, or market expectations, approximately expect that the RBNZ could move at the end of the year. That is not inconsistent with the way that we are looking at it but that will depend on economic data as it comes through," he said.

Analysts said future direction will depend on how international investors react to the statement overnight.

The NZ dollar was at A77.38c at 5pm from A76.80c at 8am and A76.67c at 5pm yesterday.

It was at 0.5604 euro from 0.5577 yesterday and at 65.58 yen from 65.43.

The trade weighted index was at 70.35 from 70.02 yesterday.