New Zealand's unemployment rate fell more than expected in the second quarter as the economic recovery boosted jobs and began to push up wages. The New Zealand dollar rose as traders bet that there could be as little as two weeks left before raising interest rates.

New Zealand's statistics department said Wednesday in Wellington that the unemployment rate fell to 4% in the second quarter and 4.6% in the first quarter. Economists expect 4.4%. Employment increased by 1% over the previous quarter. Private sector regular-time wages rose the most in 13 years.

The labour market report is the latest sign that the economy may be overheating, and the Bank of New Zealand is likely to raise interest rates to contain price pressures. Year-on-year inflation surged to 3.3 per cent in the second quarter, exceeding the central bank's target range of 1-3 per cent.

Investors have stepped up their bets on raising interest rates, and the market is now fully expected to raise interest rates by 25 basis points in the next policy review on Aug. 18, with at least one more increase expected before the end of the year. Economists at ASB Bank and Bank of New Zealand say they now expect to raise interest rates three times this year, bringing the cash rate to 1 per cent.