Currency: Kiwi holds firm after overnight rally

The New Zealand dollar held most of its overnight gains today following a rally in the wake of the Reserve Bank's strongly worded statement yesterday.

The New Zealand dollar closed at 5pm today at US68.30c, slightly down on the 68.42c opening, but well up on last night's local close of US67.96c.

BNZ currency strategist Sue Trinh said the local unit was buoyed by Dr Bollard's comments that there was no prospect of a rate cut in the foreseeable future.

The cash rate was left at 6.75 per cent -- the highest in the industrialised world -- and has played a big part in the kiwi's rise over the past year.

Dr Bollard raised the bank's forecast for inflation and acknowledged it would temporarily rise above the 3 per cent ceiling the bank is mandated to keep it below -- hence the comment that there was no scope for rate cuts in the foreseeable future.

Dealers said that despite the gloomy outlook for the economy and the unhealthy trade and currency account deficits, there was plenty of interest from Asian investors for the New Zealand dollar.

Meanwhile, the US dollar shuffled in a narrow band on Friday ahead of US economic growth data that could strengthen the Federal Reserve's resolve to keep raising interest rates, which would buoy the US currency.

The market was awaiting second quarter US gross domestic product figures to see which way to move. Dealers said a surprise on the high side could bolster expectations the dollar's rate advantage over rival currencies will keep widening.

The US central bank has raised the funds rate at each of the nine past meetings, to 3.25 per cent. With the market largely expecting a rise to 4 per cent by year-end, investors are hungry for any clues about whether rates will rise beyond that in 2006.

In Wellington, the euro finished the week at US$1.2125 (US$1.2070) and the US dollar at 112.20 yen (112.43).

The Australian dollar closed at US75.95c (US75.59c at 5pm yesterday).

On its crosses, the kiwi finished at A89.90c (A89.91c), 0.5633 euro (0.5631), 38.91 British pence (38.99), 0.8780 Swiss francs (0.8805) and 76.62 yen (76.41).

The TWI closed at 69.17 (69.02) and the monetary conditions index on plus 963 (951).

On the money market, 90-day bank bill yields closed on 7.04 per cent (7.03 per cent), July 2009 bond yields on 5.73 per cent (5.79), and April 2015s on 5.71 per cent (5.77).

- NZPA