The New Zealand dollar spurted back over US70c for the first time in a month today as investors chased higher interest rates.
The kiwi shot up more than half a US cent on a rumour in offshore markets that the Reserve Bank may raise interest rates by half a percentage point to 7.25 percent next week.
That talk is seen as "overblown" by most local traders, and is not matched by money market pricing.
Such a move would give an impression of central bank "panic" the ANZ National Bank said.
The kiwi closed at US70.33c compared with US69.70c at yesterday's close.
The latest Reuters poll has 14 of 15 forecasters expecting a quarter percentage-point rise on October 27 but no one currently picking a further rise in December.
The consensus is that the next move will be a quarter percentage-point cut, no sooner than the third quarter of next year.
If Reserve Bank governor Alan Bollard hikes the official cash rate to 7 percent on Thursday as expected, New Zealand will maintain its position as the highest central bank interest rate in the industrialised world.
"It's a done deal and it's just a question of whether they will go again in December," an Auckland dealer said.
Exporters would feel extreme pain, he said. In the meantime, international investors were chasing yield.
The kiwi also continued to strengthen against the yen, hitting 81.05 by the close, up from Wednesday's eight-year high.
The Auckland dealer said the strength against the yen indicated where the investment in the kiwi dollar was coming from.
The kiwi was strong on other cross rates, climbing steeply against the Australian dollar, where it is perched at A93.50c -- its highest level since late May.
The US dollar fell against most currencies including the euro and yen after its rally fuelled by expectations of higher US interest rates ran out of steam and traders took profits.
Since the dollar climbed to a two-year high against the yen and a three-month peak versus the euro earlier in the week, investors have been squaring long dollar positions despite a run of upbeat US economic data.
Traders said that a host of comments from Federal Reserve officials suggesting US rates will continue to rise beyond the current 3.75 percent have only confirmed what the market already expects and has done little to push the dollar higher.
- NZPA
<EM>Currency:</EM> Kiwi dollar spurts back over US70c
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