New Zealand Dollar Surges on Speculation Interest Rates May Be Hiked

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New Zealand Dollar Surges on Speculation Interest Rates May Be HikedThe New Zealand dollar rose by the highest margin in over a week on speculation that the central bank will increase interest rates this week.

The kiwi remained slightly unchanged at 86.88 U.S. cents as of 8:59 a.m. in New York after earlier surging by up to 0.4 percent, the most since July 9. Economists in a Bloomberg survey forecast that the Reserve Bank of New Zealand Governor Graeme Wheeler will increase the country’s benchmark interest rate to 3.5 percent this Thursday.

“The market is positioned for a rate hike,” Valentin Marinov, a London-based head of European Group of 10 currency strategy at Citigroup Inc told Bloomberg. “If the Reserve Bank of New Zealand ignores recent data and maintains a constructive view on the N.Z. economy and inflation, this could corroborate market expectations of at least one more rate hike this year. Absent significant further deterioration in risk sentiment, kiwi could consolidate here.”

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New Zealand has increased borrowing costs three times in 2014 amid indicators that the world economy is strengthening sufficiently to weather squeezed monetary policies.

Meanwhile, a dollar index retreated from its strongest level in four weeks after the Federal Reserve Bank of Chicago national activity gauge grew much slower than expected. The Bloomberg Dollar Spot Index, which measures the greenback versus 10 major peers, was trading at 1,009.80 after earlier touching 1,011.12 last Friday, its strongest level since June 20. The Federal Reserve Bank of Chicago’s national index grew by 0.12, compared with 0.16 percent in May.

The U.S. dollar remained slightly unchanged at $1.3522 per euro and also held firm against the yen at 101.37. The yen was trading at 136.99 yen per euro in a day characterized by minimal activity as Japanese markets were closed for a public holiday. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com