KEY POINTS:
The New Zealand dollar fell to a three-week low today as the US dollar returned to favour with investors.
Having topped US79c last Thursday, the kiwi started a steep slide on Friday evening that had it down to US75.25c early today.
It recovered to US75.60c by the local close, nearly a cent down on the US76.44c at 5pm yesterday.
The greenback was boosted by year-end transactions and speculation US inflation may cause the Federal Reserve to be less aggressive in cutting interest rates next year.
The US central bank is expected to lower benchmark rates again in 2008 to shield the economy from a slumping housing market.
But analysts think lurking price pressures could force officials to adopt a slower pace of monetary policy easing by keeping rates unchanged when they meet on January 30.
ANZ bank said an overnight sell-off in equities had spread into riskier assets, and the NZ dollar tends to underperform when risk aversion rose.
Updated Treasury figures today showed the Government coffers are still overflowing and Finance Minister Michael Cullen hinted at another tax cut after a planned $1.5 billion cut in April 2009.
Just about all Treasury's forecasts pointed to higher inflation, which is likely to underpin the currency. The Reserve Bank has already warned one round of tax cuts would be inflationary.
Treasury raised its growth forecast for the year to March 2008 to 3 per cent from 2.6 and the following year to 2.1 from 1.6.
It also forecast higher inflation of 3.1 per cent in 2008 and 2.8 per cent the following year.
The Government's cash position has improved by around $3 billion over four years.
Meanwhile, a further decline in business confidence in December did not hold back forecasts for economic growth of over 2 per cent, according to National Bank's monthly business outlook.
A net 25 per cent of companies surveyed expected conditions to worsen in the next year, from a net 20 per cent of pessimists in November and down from October's six-month high of 16 per cent.
In contrast to the previous survey, companies' own activity expectations improved, to a net 18 per cent expecting better times ahead, up from 16 per cent in November.
The Australian dollar firmed after minutes from the Reserve Bank of Australia's December policy meet showed that the central bank saw strong reasons for lifting interest rates, although it held off from doing so because of the global credit squeeze.
The kiwi cross fell to A87.86c from A88.55c yesterday while the Australian dollar eased to US85.77c from US86.39c.
The kiwi weakened on other crosses and the traded-weighted index fell to 70.90 from 71.80.
Currency rates at 5PM
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US75.60c US76.44c
NZ dlr/Aust dlr A87.86c A88.55c
NZ dlr/euro 0.5247 0.5293
NZ dlr/yen 85.65 86.51
NZ dlr/stg 37.39 37.86p
NZ TWI 70.90 71.80
Australian dollar US85.77c US86.39c
Euro/US dollar 1.4404 1.4452
US dollar/yen 113.26 113.12
- NZPA
