NZ dollar soars vs. Aust as RBNZ flags rate hike next year, Aussie jobs weak

The New Zealand dollar jumped more than 1 Australian cent against its trans-Tasman counterpart after the Reserve Bank signalled sharper rate hikes are coming next year, and as weaker employment in Australia kept alive the prospect of another rate cut across the Tasman.

The kiwi climbed to 87.84 Australian cents at 5pm in Wellington from 86.62 cents at 8am and 86.58 cents yesterday. The kiwi climbed to 81.28 US cents at 5pm from 80.81 cents at 8am and 80.35 cents yesterday.

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.5 percent today, and said rates expected to start rising next year to keep inflation in check. The forecast track of the 90-day bank bill rate, seen as a proxy for the OCR, rose at a steeper pace than previously in the latest quarterly monetary policy statement. Wheeler has been reluctant to raise rates to beat down a bubbling property market for fear of making an already elevated currency more attractive.

While interest rates are set to climb in New Zealand, weak Australian jobs figures have kept another rate cut on the table for the Reserve Bank of Australia, with an unexpected drop in the number of people employment.

"Everyone had just convinced themselves that the cross on kiwi/Aussie had peaked," said Mike Jones, currency strategist at Bank of New Zealand in Wellington. "The Reserve Bank was first up then the Aussie employment added upside thrust to the kiwi/Aussie and took a slew of topside levels.

The local currency gained against all of its peers on the Reserve Bank's monetary policy review, which added about 50 basis points to its forecast hike in rates. That would have been a further 30 basis points higher had the bank not announced restrictions on low-equity home lending as a means to quell a buoyant property market.

The kiwi gained to 80.89 yen from 80.76 yen yesterday, and rose to 61.07 euro cents from 60.63 cents. It advanced to 51.37 British pence from 51.11 pence yesterday. The trade-weighted index rose to 76.41 from 75.74.

(BusinessDesk)