New Zealand’s dollar climbed to its strongest level since February against the Australian dollar on speculation its central bank will raise interest rates at a faster pace than Australian policy makers.
The kiwi rose the most in a week against the greenback after Reserve Bank of New Zealand Governor Alan Bollard said the economy is “less fragile” and a government report showed the jobless rate dropped by the most since 1986. The Aussie traded near a two-month low as concern European officials aren’t containing Greece’s deficit turmoil deterred risk demand.
“Bollard reinforced the signal that June is a go for the first rate increase and the employment report was a massive surprise,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., Australia’s second-largest lender. “The market will continue to buy kiwi on this.”
New Zealand’s dollar climbed 1 percent to NZ$1.2509 against the Australian dollar at 10:08 a.m. in New York, from NZ$1.2634 yesterday, after reaching NZ$1.2432, the strongest level since Feb. 3. The currency rose as much as 1.5 percent to 72.77 U.S. cents in the biggest intraday gain since April 28. The Aussie dropped as much as 0.8 percent to 89.92 U.S. cents, the lowest level since March 5.
Investors should buy the New Zealand dollar, targeting a gain to 73.25 U.S. cents and then 74.40 cents, according to Speizer. The currency will appreciate toward NZ$1.24 versus Australia’s dollar, Speizer said.
N.Z. Rate Outlook
New Zealand’s central bank will raise the 2.5 percent official cash rate by 2.15 percentage points over 12 months, more than three times as much as the 0.63 percentage point of increases expected in Australia, according to Credit Suisse Group AG indexes based on swaps.
“Financial markets currently expect the Reserve Bank to begin raising the official cash rate around the middle of the year and continue to do this in small steps for some time,” Bollard said in an e-mailed statement, based on a speech to local government officials in Dunedin today. “This is broadly in line with our current views.”
New Zealand’s jobless rate dropped to 6 percent in the first quarter from 7.1 percent in the previous three months, the statistics bureau said today.
The nation’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to interest-rate expectations, rose to 4.59 percent after reaching 4.65 percent, the highest level since Jan. 5.
Australian government bonds advanced for a third straight day as Europe’s debt crisis spurred demand for relative safety. The yield on the benchmark 10-year note fell 12 basis points, or 0.12 percentage point, to 5.54 percent, according to data compiled by Bloomberg. The 4.5 percent security due in April 2020 gained 0.84, or A$8.40 per A$1,000 face amount, to 92.14.
European Central Bank President Jean-Claude Trichet resisted pressure from economists to consider buying government bonds to help relieve the euro area’s spreading fiscal crisis.
“We didn’t discuss the matter,” Trichet told reporters in Lisbon after policy makers left the benchmark interest rate at a record low 1 percent. “I have nothing else to say on that. We call for decisive actions by governments to achieving a lasting and credible consolidation of public finances.”