N.Z. Dollar Rises on Prospect Jobs Will Keep Rates at Record

New Zealand's dollar gained after a report showed the South Pacific nation's jobless rate fell to a record low, boosting prospects the central bank will refrain from cutting interest rates anytime soon.
TradingEconomics.com, Bloomberg 2/7/2008 6:53:46 AM

The local dollar, known as the kiwi, climbed from late in Asia yesterday against all 16 most-traded currencies as traders reduced bets the Reserve Bank of New Zealand will cut the benchmark rate this year. New Zealand's rate is the highest after Iceland's among Aaa rated economies and is 5.25 percentage points more than the U.S. target, luring investors to the country's higher-yielding bonds and bills.

High employment ``keeps the Reserve Bank painted into a corner for the time being,'' said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Auckland. ``It's supportive for the kiwi because it means higher rates for longer.''

The currency rose to as high as 78.91 U.S. cents before trading at 78.66 cents at 5:52 p.m. in Wellington, from 78.19 cents in late Asian trading yesterday. It traded at 83.71 yen, from 83.30 yesterday.

The kiwi snapped a two-day loss as the unemployment rate fell to 3.4 percent in the fourth quarter, down from 3.5 percent in the third. The median estimate of economists surveyed by Bloomberg News was for the rate to rise to 3.6 percent.

A low jobless rate may fan wages and drive inflation, which has already exceeded the central bank's preferred 1 percent to 3 percent band. New Zealand businesses added 423,000 workers in the quarter, almost four times the pace predicted by economists.

New Zealand's dollar rose to a 22-year high last year, and gained 9.8 percent against the dollar in 2007, its biggest jump in three years, on the appeal of its higher interest rates. It added 3.5 percent versus the yen over the same period.

N.Z. Dollar Rises on Prospect Jobs Will Keep Rates at Record