The New Zealand dollar barely blinked today after the Reserve Bank announced it would raise the surplus cash in the banking system to $500 million from $20m.
The bank said it was a technical adjustment and not a monetary signal and commentators agreed.
The kiwi closed on US68.25, barely changed from its opening and marginally higher than yesterday's US68.17c close.
Meanwhile, the Australian dollar firmed to US75.11c from US74.91c and the cross rate eased to A90.90c from A90.97c.
The RB said there had been a squeeze on in the cash and foreign exchange forwards market due to a shortage of cash and that would be exacerbated by the maturing of the February 2006 government bonds and the February tax take.
The squeeze was making it difficult for traders to go short in New Zealand dollars as the rates to borrow to cover their position rise.
BNZ currency strategist said it was not a "proxy easing".
"Our take is that any such move is completely consistent with the bank's stated mandate of maintaining financial stability and signals nothing in terms of monetary policy.
"A by-product, however, is that short rates will be forced lower, and thus the expense of running short New Zealand dollar positions will be less prohibitive."
There was speculation in the market about another issue of uridashis -- New Zealand dollar denominated bonds sold to Japanese investors.
The US dollar firmed as investors waited for the interest rate decision from the US Federal Reserve, due out early tomorrow (NZ time).
The Fed is expected to raise the key interest rate by 25 basis points to 4.5 per cent, for its 14th consecutive rate rise. It is expected to be chairman Alan Greenspan's last move, as he leaves the central bank after more than 18 years.
The following are Reuters currency rates:
5pm Tuesday 5pm Monday
NZ dlr/US dlr US68.258c US68.17c
NZ dlr/Aust dlr A90.90c A90.97c
NZ dlr/euro 0.5642 0.5635
NZ dlr/yen 80.30 80.02
NZ dlr/stg 38.58 38.60
NZ TWI 69.83 69.75
Australian dollar US75.11 US74.91
Euro/US dollar US1.2102 US1.2092
US dollar/yen 117.56 117.40
- NZPA
<EM>Currency:</EM> Dollar barely blinks
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