S&P raises New Zealand ratings on COVID success; kiwi dollar soars

Ratings firm S&P raised New Zealand's sovereign credit ratings by a notch on Monday, saying the economy was on a quicker recovery path from the COVID-19 pandemic, sending the local dollar soaring.

S&P raised New Zealand's foreign and local currency sovereign credit ratings by a notch to 'AA+/A-1+' and 'AAA/A-1+' respectively. The outlook was maintained at stable.

The ratings agency said New Zealand is recovering quicker than most advanced economies because it has been able to contain the spread of COVID-19 better than most others.

"This provides us with better clarity over the extent of the pandemic's damage to the government's balance sheet," it said in a statement.

"We now believe that the government's credit metrics can withstand potential damage from negative shocks to the economy...," it added.

The New Zealand dollar popped up to its highest since April 2018 at $0.7338.

New Zealand bond yields have been surging in recent weeks as the economy beat all expectations and investors wagered the Reserve Bank of New Zealand (RBNZ) might scale back its stimulus this month.

Yields on 10-year bonds jumped to 1.66% on Monday, levels not seen since the market mayhem of last March, having climbed 64 basis points since the turn of the year.

RBNZ is expected to leave interest rates unchanged on Wednesday, but will be cautious as a more hawkish tone would see the market react further and send the dollar higher.