KEY POINTS:
The usual rule that the New Zealand dollar rises when interest rates rise was turned on its head today.
The New Zealand dollar fell on its US cross rate after Reserve Bank Governor Alan Bollard hiked the overnight cash rate a quarter point to 7.5 percent.
"The market was expecting the Reserve Bank of New Zealand (RBNZ) to be unequivocally hawkish, but because the statement had ambiguity in terms of introducing other ways of stabilising the housing market it was seen as a slightly softer statement," said John Body, head of markets at ANZ.
"People who had been buying the kiwi in anticipation of a strong statement have been forced to sell," he said.
The New Zealand dollar was trading at US68.06c at 5pm, down from the US68.48c open and US68.14c close yesterday. It fell below US68c during the session to a low around US67.55c.
Other dealers also said that the rate rise had been expected and therefore fully priced into the market so it had been vulnerable to a fall.
Bank of New Zealand economists said that any suggestion that the central bank believes other policy measures can achieve what the overnight cash rate can't implies less likelihood of future rate rises.
The BNZ said the central bank's discussion of tax rules on investments and capital ratios as alternatives to interest rates in controlling the housing market had simply clouded the monetary policy message.
The bank has created a monster it will have to fight to control.
Against the Australian dollar the kiwi was at A87.70c from the A88.03 open. Against the euro it was at 0.5170 from the 0.5205 open.
The trade weighted index declined to 67.22 from 67.41 yesterday.
Mr Body said the RBNZ statement today took the focus off the global trend of unwinding carry trades between low interest rate countries like Japan and high interest rate countries like New Zealand.
Overnight among the major currencies, the US dollar had softened against the euro and Swiss franc as investors prepared for a potentially weak US payrolls figure on Friday which could confirm the view that the US economy is losing steam.
The yen moved little after a week in which most of the market's attention focused on the Japanese currency as it rose 3.6 percent against the greenback. The yen was lifted by the liquidation of carry trades.
If the US payrolls number is significantly weaker-than-expected it could bring the currency market back to focusing on fundamentals and the US dollar's prospects.
Rates:
5pm today 5pm yesterday
NZ dlr/US dlr US68.06c US68.14c
NZ dlr/Aust dlr A87.70c A88.02c
NZ dlr/euro 0.5170 0.5197
NZ dlr/yen 79.36 79.49
NZ dlr/stg 35.28 35.37p
NZ TWI 67.22 67.41
Australian dollar US77.63 US77.54c
Euro/US dollar 1.3166 1.3127
US dollar/yen 116.52 116.49
- NZPA