The New Zealand dollar failed to make any more ground towards US71c today despite yesterday's interest rate hike by the Reserve Bank and the threat of more rises ahead.
At 5pm, the kiwi dollar was buying US70.76c, above last night's local close of US70.54c but shy of a six-week high of US70.90c struck in offshore trading overnight.
Reserve Bank Governor Alan Bollard yesterday raised the official cash rate to 7 per cent, maintaining New Zealand's ranking as having the highest central bank interest rate in the industrialised world.
From a yield perspective, that has underpinned the kiwi for the past year. Last night $350 million worth of eurokiwis - New Zealand dollar-denominated bonds - were launched in response to the decision.
The kiwi was largely unmoved today by Statistics New Zealand data showing the country's merchandise trade balance - which pits the cost of imports versus the value of exports - narrowed slightly in September to a $992 million deficit from $1.1 billion in August.
Economists said the data offers no comfort that the country's current account deficit, currently at 8 per cent of gross domestic product, will improve without a major correction in the New Zealand dollar or a reduction in rampant consumer spending.
"We think that such deficits will increasingly cap investor enthusiasm for the New Zealand dollar," Deutsche Bank senior economist Darren Gibbs said.
Such a move was not likely until 2006, however, when signs emerged that global commodity prices were substantially easing and the prospect of monetary easing was again on the cards.
- REUTERS
<EM>Currency:</EM> Kiwi treads water on interest rate hike
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