The New Zealand dollar bounced above US68c in late trading today, recovering from a sharp overnight sell off sparked by news local officials had been warning foreign investors of the risks of investing in New Zealand dollar bonds.
The kiwi fell to US67.67c overnight, but by 5pm was trading at US68.08c compared with its US68.25 close yesterday.
The kiwi was sold off heavily on rumours a $600 million uridashi issue - New Zealand dollar denominated bonds sold to Japanese investors - had been canned as news of the officials' visit leaked out.
Currency dealers said the kiwi was temporarily oversold, but said the trend was down and foreigners would take the news as major sell signal.
Retail sales figures out today supported the notion that the New Zealand economy was set for a slow down.
Statistics New Zealand today reported seasonally adjusted sales rose 0.9 per cent in November, against expectations of 0.3 per cent. However, excluding car sales the figures revealed a truer picture of the economy -- sales fell 0.1 per cent in the month.
Economists said despite the retail sales being higher than forecast, the economy probably shrank during the December quarter.
That might not be enough to persuade Reserve Bank Governor Alan Bollard to cut interest rates at his formal review next Thursday, although it is now widely expected he won't hike rates again.
New Zealand's official cash rate, currently 7.25 per cent, has underpinned the kiwi in the past year, as offshore investors flocked to take advantage of the high yield, buying a record $25.3 billion of New Zealand dollar denominated bonds in 2005.
But with the kiwi tipped to plunge to around US60c by year end, investors run the risk of major currency losses if their bonds mature at the bottom of the currency cycle.
The New Zealand dollar closed lower against its Australian counterpart today, buying A90.94c at 5pm from A91.48c late yesterday. The Australian dollar also firmed slightly against the US unit, to US74.87c from US74.67c yesterday.
The following are Reuters currency rates:
5pm today 5pm Thursday
NZ dlr/US dlr US68.08 US68.30
NZ dlr/Aust dlr A90.94 A91.48
NZ dlr/euro 0.5636 0.5645
NZ dlr/yen 78.71 78.76
NZ dlr/stg 38.76 38.76
NZ TWI 69.55 69.70
Australian dollar US74.87 US74.67
Euro/US dollar US1.2081 US1.2090
US dollar/yen 115.58 115.35
- NZPA
<EM>Currency:</EM> Kiwi bounces above US68c
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