KEY POINTS:
The New Zealand dollar jumped US2c yesterday as confidence returned to equity markets and the Reserve Bank acted to shore up liquidity in the banking system.
The kiwi ended on US71.20c compared with its US69.17c close on Wednesday.
ANZ head of financial markets John Body said if equity markets rise again overnight, as they have for the past four days, then the kiwi was likely to continue heading north. "As long as the Dow doesn't tank tonight, the currency will rise."
He said Japanese players were back in the market hunting kiwi dollars.
Body said the Reserve Bank's move to change the liquidity regime took pressure off any tightness in the banking market.
The bank said it would accept NZ bank bills as collateral from today.
"Pressures have persisted over the past week warranting steps to ease liquidity conditions in the interbank market," Deputy Governor Grant Spencer said. "This measure is aimed solely at easing short-term interbank liquidity pressures and has no implications for the bank's monetary policy stance."
It has not pumped extra cash into the financial system during the current market squeeze as some other central banks have, but in response to demand for government securities has increased the amount of Treasury bills and short-term government bonds. The bank also increased the regular monthly bond tender by $100 million to help ease any credit crunch but, in the event, bids were light and the tender was $100 million under-accepted.
Body said as more certainty developed in equity markets, the risk aversion mentality of last week was diminishing.
He said trading lacked the fireworks of last week and was relatively quiet.
Against the yen, the kiwi jumped to 82.56 from 79.09 at 5pm on Wednesday. It rose to A87.46c from A86.47c at yesterday's local close and the trade weighted index ended 2.6 per cent higher on 68.91. Meanwhile, European Central Bank President Jean Claude-Trichet hinted at a possible September rate hike for the euro by saying "strong vigilance" was needed to stem inflation risks. That helped renew the appeal of higher-yielding currencies such as the Australian and NZ dollars and reduced the attractiveness of holding a low-yielding currency such as the yen.
- NZPA