KEY POINTS:
The New Zealand dollar zoomed to a three-month high after Australia raised its interest rates and as the US dollar plumbed to a record low on its trade weighted index.
The kiwi raced to US78.60c at its close, more than a cent up on its opening and against US77.21c yesterday.
"The US dollar is in a big bear market, borne out by the fact that no one wants to buy the US dollar," said a Wellington dealer.
The euro hit a record high against the US dollar, hurt by ongoing worries of financial firms' losses from the credit market turmoil and expectations for the Federal Reserve to cut interest rates further.
The dollar's slump also came after a senior Chinese political figure said China should diversify its US$1.43 trillion ($1.86 trillion) stockpile of foreign exchange reserves by buying more strong currencies such as the euro.
The Australasian currencies got an added fillip mid-morning when the Reserve Bank of Australia hiked interest rates by a quarter point to 6.75 per cent.
It is the sixth increase since the 2004 election and demonstrated the bank's willingness to hike rates despite the upcoming general election on November 24.
The decision - following the central bank's monthly board meeting yesterday - came in the wake of last month's strong inflation figures and a series of other indicators suggesting price pressures are becoming overheated.
Analysts expect another hike before Christmas.
"The market still wants to buy Aussie dollars and we kept pace, or did better," the Wellington dealer said.
The kiwi rose to A83.97c from A83.65c against the Australian dollar, despite the latter's rise against the greenback to a 23-year high of US93.49c from US92.29c at 5pm yesterday.
Dealers said the kiwi's basic support level was now at US78.20c and resistance up at US79.20c.
Market players said the RBA's statement suggested the central bank may raise interest rates further and that will further boost to the Australian dollar.
"Moves in commodities and expectations for further rate rises are lending support to the Australian dollar," said a trader at a major Japanese brokerage house.
Tomorrow, currency traders will turn their attention to rate decisions by the Bank of England and the European Central Bank.
The two are expected to hold rates steady, the BoE at 5.75 per cent and the ECB at 4.0 per cent.
-NZPA
