KEY POINTS:
The New Zealand dollar recovered today from early weakness, dragged higher by the Australian dollar after stronger-than-expected inflation data.
The NZ dollar traded a sizeable US1 cent range over the last 24 hours, retreating below yesterday's post-float high of US81c as it weakened along with other high-yielding currencies against the yen.
By 5pm, the kiwi rose to US80.57c from US80.35c this morning, but below late yesterday afternoon's level of US80.87c.
The kiwi eased against its Australian counterpart, falling to A90.94c from A91.45c yesterday.
It was unable to match the Aussie's surge on expectations of a Reserve Bank of Australia rate rise next month, after consumer price inflation rose 1.2 per cent in the June quarter for an annual rate of 2.1 per cent. That was higher than the market forecast for a rise of 1.0 per cent in the June quarter and an annual pace of 1.9 per cent.
Tomorrow's Reserve Bank of New Zealand interest rate decision is expected to remain a secondary factor overnight, behind concerns about the US credit market, said Westpac currency strategist Michael Gordon.
"At the moment we've put 80 per cent odds on a hike versus 20 per cent on no change. Because a hike is not completely factored into markets, I think that either way we will get a sizeable reaction on the day."
The US dollar fell to a two-and-a-half month low against the yen today as fears about worsening US subprime mortgage market problems and housing sector weakness prompted investors to shun the US currency.
A fall in Asian stock markets also prompted investors to trim risky trades financed by borrowing in the low-yielding yen, selling the US dollar and other high-yielding currencies against the Japanese currency.
Reuters currency rates:
5pm 4.45pm yesterday
NZ dlr/US dlr US80.57c US80.87c
NZ dlr/Aust dlr A90.94c A91.45c
NZ dlr/euro 0.5832 0.5852
NZ dlr/yen 96.90 97.53
NZ dlr/stg 39.12p 39.18p
NZ TWI 76.65 76.95
Australian dollar US88.61c US88.88c
Euro/US dollar 1.3813 1.3833
US dollar/yen 120.32 121.51
- NZPA