The New Zealand dollar jumped three quarters of a US cent after the Reserve Bank raised its benchmark interest rate and signalled rates would continue to rise broadly as it outlined in March.
It surprised some traders who had expected it to pull back its future track to reflect weaker commodity prices.
The kiwi touched a three-week high of 86.27 US cents, from 85.50 cents immediately before the Reserve Bank's monetary policy statement. The local currency was recently trading at 86.10 US cents.
Reserve Bank governor Graeme Wheeler raised the official cash rate by 25 basis points to 3.25 per cent and signalled there would be no pause in the bank's tightening cycle as he moves policy back to more neutral levels in an attempt to ward off higher inflation.
"The market was expecting Wheeler to be slightly more dovish on his approach and maybe even reduce the bank bill track significantly and that basically didn't happen.
"That makes it very clear from Wheeler that we are going to continue raising rates on the current track that we are on until he believes that we are in a more neutral stance given inflation," said Stuart Ive, senior advisor at OMF.
The central bank sees annual inflation breaking through the mid-point of its 1-3 per cent target range in the June quarter of 2015, at 2.1 per cent, three months earlier than was projected in the March.
The kiwi faces resistance at 86.50 US cents as the greenback is underpinned by an improving US economy, and traders would need to see weaker data on US retail sales to break through that level, Mr Ive said.
The New Zealand dollar also spiked higher against the Australian dollar following the rate hike. The local currency touched a two-week high of 91.80 Australian cents, from 91.14 cents immediately before the 9am announcement, and was recently trading at 91.75 cents.
The local currency jumped to a one-year high of 63.74 euro cents, from 63.18 cents before the statement and was recently trading at 63.60 cents. It rose to a three-week high of 51.38 British pence from 50.93 pence before the MPS and was recently trading at 51.26 pence. The kiwi rose to a four-week high of 87.99 yen from 87.27 yen before the statement and was recently at 87.78 yen.
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