KEY POINTS:
The New Zealand dollar today sprinted to a post-float high of US81.53c, breaking the previous peak of US81.14c set in July.
It came off its high in late trading after a Reserve Bank survey showed a very slight easing in inflation expectations.
However, ANZ Bank chief dealer Murray Hindley said when the July high was breached in the morning, the kiwi had momentum and that could be repeated again tomorrow or after profit takers had done their thing. "The feeling is both the aussie and the kiwi are holding on to their gains," Mr Hindley said.
Hopes that a possible rescue plan for troubled Ambac Financial Group, the second-largest US bond insurer, would help limit the damage from the ongoing credit crisis bolstered investor confidence around the world.
High-yielding currencies tend to benefit in such an environment as investors favour riskier carry trades, where low-yielding units like the yen are sold to fund purchases of higher-yielding and riskier assets, such as the NZ dollar.
The outlook for interest rates here and in Australia are for rates to remain firm.
Both the Reserve Bank of Australia and the Reserve Bank of New Zealand are due to deliver monetary policy reviews next week with the RBA highly likely to hike rates and the RBNZ likely to be hawkish in tone.
The kiwi closed the session on US81.15c compared with US80.82c yesterday. The kiwi was floated in March 1985 at US44.4c.
Westpac currency strategist Michael Gordon said internationally there was a feeling the worst of the credit crunch and subprime mortgage crisis was over and that put the focus back on interest rate differentials.
With no prospect of interest rates here being cut, the kiwi was again perceived as something of a one-way bet.
Shogo Nagaya, forex manager at Nomura Securities said currencies with a clear direction in monetary policy, such as the Australian dollar with expectations for rising interest rates, were supported while a rate cut outlook is weighing on the US dollar.
"Flows linked to the difference in yields are back, in addition to the return of some risk appetite," he said.
The kiwi also performed strongly overnight against other currencies.
It reached a 4-1/2-month high against the euro of 0.5476 before easing to 0.5470 by 5pm. Against the yen it touched a two-month high of 87.69, then slipped to 87.50.
The NZ dollar also hit a two-week high against the Australian dollar of A87.78c, before dropping to A87.31 at the close while the trade-weighted index closed on 73.98 from 73.79 yesterday.
Reuters currency rates:
NZ dlr/US dlr US81.15c US80.82c
NZ dlr/Aust dlr A87.31c A87.45c
NZ dlr/euro 0.5470 0.5455
NZ dlr/yen 87.50 86.75
NZ dlr/stg 41.23 41.10p
NZ TWI 73.98 73.79
Australian dollar US92.88c US92.43c
Euro/US dollar 1.4828 1.4815
US dollar/yen 107.91 107.34
- NZPA
