The New Zealand dollar closed higher yesterday, its price action accentuated by increasingly tight liquidity.
The kiwi finished at 40.44USc after trading once again in a big range, from 40.18c to 40.72c.
On Tuesday, it varied over 1USc as conglomerate Fletcher Challenge's restructuring announcement initially kicked it higher before people realised that the demand for NZ currency from the sale of Fletcher Energy would be less than expected.
A currency dealer said the kiwi held up well yesterday despite that disappointment, shooting up after being short early on and on the back of a firm Australian dollar.
But it lost some shine by day's end, and main support was around 40.10USc.
The dealer said a big factor yesterday was compounded liquidity problems as Westpac increased its bid and offer spread in the interbank market to 10 basis points as against the normal seven points. Such a move is indicative of uncertainty about the currency's direction and makes it more expensive for buying banks to clear orders. The upshot is that as liquidity reduces, price movements get accentuated.
Quote spreads in more liquid currencies such as the euro and aussie tend to be five basis points.
Westpac would not comment at this early stage but the dealer - from one of the other big four banks - said it was a way of coping with volatility.
- NZPA
<i>Currency:</i> Dollar firms in tight market
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