The New Zealand dollar rose above 84 US cents overnight after stronger-than-expected labour market data affirmed bets a strengthening economy will require rate hikes next year.
The kiwi touched a high of 84.14 US cents overnight, rising over 84 cents for the first time since October 24. The local currency was at 83.77 at 8am in Wellington trading, from 83.81 cents at the 5pm market close yesterday. The trade-weighted index was little changed at 77.76 from 77.83 yesterday.
Investors favoured the New Zealand dollar after data yesterday showed the economy added the most jobs in more than six years, dropping the unemployment rate to 6.2 per cent from 6.4 per cent. That strengthens the case for interest rate rises from a record low 2.5 per cent next year. New Zealand is set to be the first developed nation to hike rates this cycle, keeping the kiwi in demand.
"The main driver (of the higher kiwi) is the residual effect of the strong jobs report in New Zealand yesterday," said Imre Speizer, markets strategist at Westpac Bank. in Auckland. "The economy is strong, growing, on-track and interest rates will go up and the kiwi will go up."
Speizer expects the kiwi to increase above 86 US cents by the end of the year.
The New Zealand dollar fell to 61.96 euro cents from 62.03 cents yesterday as expectations waned that the European Central Bank will cut rates from a record low 0.5 per cent at a meeting today even though inflation in the bloc has fallen to its lowest level in almost four years.
Traders overnight eyed a report from Market News International quoting three Eurozone officials close to the European Central Bank saying the bank won't cut rates today as officials don't want to react too quickly to fast-changing economic signals, said Westpac's Speizer.
Only one of 23 euro money market traders polled by Reuters expects a cut at today's ECB meeting.
Today, the focus will be on an Australian employment report, due at 1:30pm New Zealand time. A positive surprise could see the New Zealand dollar rise on the coattails of the Australian dollar, Carrick Lucas, strategist at ANZ New Zealand, said in a note.
The New Zealand dollar was little changed at 88.01 Australian cents from 88.12 cents yesterday.
The kiwi was also little changed at 82.68 yen from 82.71 yen yesterday, and at 52.10 British pence from 52.09 pence ahead of a Bank of England meeting today where the benchmark interest rate is expected to remain at 0.5 per cent.