KEY POINTS:
The New Zealand dollar jumped almost one US cent today after the Reserve Bank made its decision to hold interest rates as expected.
However, dealers said the kiwi's jump was attributable to a huge swing in Dow Jones industrial index on Wall Street rather than anything Reserve Bank Governor Alan Bollard said.
The kiwi shot up from US75.78c at the opening to a high of US76.92c before easing back through the session to close on US76.28c.
"We woke up this morning and the Dow was 200 points down, and then we had a 500 point swing," said Deutche Bank dealer Sean Brown.
"The RBNZ meeting went past without any fanfare, as you'd expect. The statement was as you'd expect.
"The was a bit of demand for the kiwi and it was after the RBNZ, but I think it was more to do with the fact that equities were going through the roof rather than anything new we learnt from the RBNZ."
A day after the Federal Reserve slashed a key US interest rate 75 basis points in a bid to head off a US recession, Dr Bollard made it clear his focus remained firmly on fighting rising prices.
He acknowledged ongoing turbulence in international financial markets and a deterioration in the outlook for the US and Europe, but said the New Zealand economy was projected to keep growing reasonably well.
"Ongoing inflationary pressures are underpinned by an expansionary fiscal policy, and rising food and energy prices," Dr Bollard said.
Goldman Sachs JBWere strategist Bernard Doyle said he doubted the Reserve Bank could have done much more than it did.
"What we're taking out of this is virtually no chance of a rate hike this year, and just watch and wait mode which we believe will show increasing signs of a domestic slowdown."
Deutsche Bank chief economist Darren Gibbs said that by the end of the year the bank "might just sneak an easing in".
Dr Bollard said while the housing market continued to cool, the labour market remained tight, and domestic income growth was still strong, especially from dairy.
The global share rebound pointed to a recovery in risk appetite, which tends to boost demand higher-yielding currencies like the kiwi.
Moves in stock markets are regarded as a barometer of investor appetite for carry trades, which involve selling low-yielding currencies like the yen to invest in higher-yielding assets.
But the yen later regained ground on ongoing jitters about the credit market turmoil stemming from defaults in US subprime mortgages, and worries about the impact on overseas financial institutions.
"Although the rebound in US shares may have soothed some concerns, a sense of unease persists. Because of that, traders tend to be quick to sell (the dollar) on rallies," said a trader for a Japanese trust bank.
US shares rallied on hopes that a government plan to rescue ailing bond insurers may be taking shape. Such hopes were stoked by news of a meeting between New York regulators, bond insurers and their customers.
Shares of insurers Ambac Financial Group and MBIA Inc, which backstop many of the riskier bets banks and their customers have made in credit markets, rose sharply.
The kiwi lost ground on the aussie cross, closing at A87.45c compared with A87.62c at the same time yesterday. The Australian dollar rose to US87.27c from US86.69c.
The kiwi gained on all crosses, with the trade-weighted index rising to 70.56 from 70.36.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US76.28c US75.97
NZ dlr/Aust dlr A87.45c A87.62c
NZ dlr/euro 0.5218 0.5199
NZ dlr/yen 81.08 80.94
NZ dlr/stg 39.06p 38.82p
NZ TWI 70.56 70.36
Australian dollar US87.27c US86.69c
Euro/US dollar 1.4617 1.4615
US dollar/yen 106.32 106.56
- NZPA