The New Zealand dollar rocketed to a fresh post-float high today of US74.49c fuelled by an interest rate hike and hawkish comments from the Reserve Bank and a dash of more US dollar weakness.
Reserve Bank governor Alan Bollard today lifted the official cash rate by 25 basis points to 6.75 percent giving yield-chasing offshore investors further reason to buy the kiwi. The kiwi "reacted accordingly" Westpac dealer Mike Burns said.
It opened at US73.40c this morning and traded as low as US73.18c before the rate announcement at 9am but spiked immediately afterward, easily breaking through its previous post float high of US74.04c.
It came off the boil later in the session but received a further boost from a US dollar sell off and topped out at US74.49c before closing today at US74.29c compared with US73.79c at the same time yesterday.
The kiwi also performed strongly against the aussie and was buying A93.23c at 5pm from A92.58c at the same time yesterday.
Dr Bollard was reasonably hawkish in the monetary policy statement (MPS), saying there was little scope for an easing in the foreseeable future and it would be "imprudent" to rule out further hikes.
He said he was aware the kiwi was at very high levels, but believed it was being driven by the low US dollar.
Meanwhile, Mr Burns said the kiwi was poised for further gains.
"The risks are still that we see more US dollar weakness."
The market was becoming increasingly gloomier about US trade data due tomorrow. A disappointing figure would see additional selling of the greenback, " and the risk remains for the kiwi to rally further".
The greenback's sell off today came after Japanese Prime Minister Junichiro Koizumi said it was necessary to have diversity in the country's massive foreign reserves.
The greenback recovered a little when Mr Koizumi's comments were qualified by Japan's finance minister.
The greenback closed in Wellington at 104.11 yen (104.69 at 5pm yesterday), while the euro was buying $1.3430 ($US1.3340).
The Australian dollar was trading at US79.67c (US79.74c).
The kiwi gained on most crosses, buying 0.5532 euro (0.5533), 38.54 British pence (38.28), 77.29 yen (77.24), and 0.8577 Swiss francs (0.8581).
The trade-weighted Index was at 71.23 (70.93), and the monetary conditions index was at plus 1110 (1077).
Today's MPS also moved the money markets with 90-day bank bill yields moving to 7.04 percent (6.92 percent yesterday), July 2009 bonds were at 6.33 percent (6.25), and April 2015s were at 6.19 percent (6.13).
- NZPA
<EM>Currency:</EM> Kiwi leaps to new high on rate hike and us dollar weakness
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