KEY POINTS:
The New Zealand dollar soared to a 15-month high against the greenback of US71.50c early today.
It also firmed against other major currencies, raising concerns the kiwi was now open to "sharp corrective moves".
A short squeeze pushed the kiwi up from yesterday's US70.90c close to US71.50c at 4am today, but from there it eased back through the local session to end on US71.06.
Evidence of the damage done to local exporters by the high currency was immediately when stock exchange top 10 company Fisher & Paykel Healthcare announced its was cutting its annual profit forecast by 10 percent to $88m. It had made its original forecast in November based on an exchange rate of around US63c.
The kiwi's strength came despite a sharp rebound by the greenback overnight against a range of currencies as traders started to reassess a statement from the Federal Reserve that was initially interpreted as signalling the end of its tightening cycle.
ANZ Bank today said a rekindling of risk appetites and strength in equity markets had seen the carry trade -- in which investors borrow low interest currencies to invest in higher yielding investments, such as the NZ dollar -- back on the agenda.
Yields in this country, particularly with the Reserve Bank on a clear tightening bias, remained attractive, ANZ said.
But it also warned the "stratospheric" rise of the NZ dollar, even though partly due to US dollar weakness, left the market open to a sharp correction.
The kiwi was vulnerable to a sharp retreat, ANZ said.
Meanwhile, the kiwi also strengthened against other currencies to close on A88.17c at 4.30pm today from A87.95c at 5pm yesterday and at 0.5330 euro from 0.5297.
The NZ dollar trade weighted index rose to 69.48 from 69.19.
In major currency trading, the US dollar edged up against the euro, slightly extending a rebound from a two-year low.
Nobuo Ibaraki, forex manager at Nomura Trust and Banking, said the Fed had merely moved from a tightening bias to neutral, not an easing tilt.
"The statement was not something that suggests a rate cut, while the central bank mentioned inflation worries."
US short-term interest rate futures priced in about a 30 percent chance of a rate cut by the end of June, down from about 50 percent just after the Fed's statement yesterday.
The Australian dollar edged higher toward a 10-year peak of US90.93c hit yesterday.
Stronger metal prices, as well as expectations that Australia's central bank will raise interest rates as early as next month from the current 6.25 percent, have been supportive for the Aussie.
Rates:
4.30pm today 5pm yesterday
NZ dlr/US dlr US71.06c US70.90c
NZ dlr/Aust dlr A88.17c A87.95c
NZ dlr/euro 0.5330 0.5297
NZ dlr/yen 83.90 83.35
NZ dlr/stg 36.18p 36.03p
NZ TWI 69.48 69.19
Australian dollar US80.53c US80.62c
Euro/US dollar 1.3324 1.3388
US dollar/yen 118.14 117.50
- NZPA