RBNZ Signals More to Follow

New Zealand’s dollar advanced to a record on a trade-weighted basis after its central bank raised interest rates and said strength in the currency was due to high prices for the nation’s exports.

The kiwi held this year’s gains against all 16 major peers as Reserve Bank Governor Graeme Wheeler indicated he will tighten policy further this year to damp inflation pressures after today announcing the first rate increase from a major developed economy. New Zealand’s currency was near a six-week high versus Australia’s before the larger economy reports on employment today.

“Strength in the currency will not impede the hiking process, which does allow the New Zealand dollar to remain strong over the coming month,” said Sam Tuck, a senior foreign-exchange manager at ANZ Bank New Zealand Ltd. in Auckland. “They are linking the exchange rate to the terms-of-trade boost, this implies that, from the RBNZ perspective, the currency is strengthening for valid reasons.” Terms of trade refers to a nation’s export earnings relative to imports.

Bloomberg

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