The New Zealand dollar retreated smartly yesterday from an overvalued position in thin, holiday-affected trade.
By 5pm the kiwi had slipped to US47.11c from US47.50c at Friday's local close, while the aussie dropped to US54.80c (US55.17c).
One local dealer said the kiwi opened about US47.35c, but fell fairly rapidly to a low of US47.07c.
"(It fell) straight away. It's a Japanese holiday today so there's relatively little interest out of Asia."
The Tokyo markets were closed yesterday for Respect for the Aged Day, removing key players from the forex markets.
"There was some good kiwi/aussie buying, working out to about A85.85c, which was good support for the kiwi," the dealer said.
"We'll probably see some selling of the kiwi when the cross-rate reaches A86.10/20c, so that should cap the rise of the kiwi.
"Both currencies are probably a little bit overvalued in the scheme of things, with the euro off a long way on Friday night and the Dow Jones closing down 66 points."
He picked the kiwi to trade between US47.00/25c overnight.
Today, Finance Minister Michael Cullen and Reserve Bank governor-designate Alan Bollard will sign a new Policy Targets Agreement (PTA) that is likely to relax the operation of monetary policy.
"It shouldn't have a huge impact on the market, the market's already got an idea of what it expects for that ... " the dealer said.
Dr Cullen has said previously he wanted the Reserve Bank to move towards how the Reserve Bank of Australia operates monetary policy.
The Australian central bank is directed to keep inflation within a 2 to 3 per cent band on average over the business cycle. The RBNZ is currently required to keep inflation between 0-3 per cent.
In offshore trade, the US dollar held a stronger tone in holiday-thinned Asian trade as it consolidated Friday's rally against the yen. The euro slipped to three-week lows under 97 US cents, heading towards a key support.
Developments in US efforts to force Saddam Hussein out of power in Iraq remained a focus for the global market, although the US dollar seemed to be little affected by risk aversion.
After hitting a near three-month high of 122.30 against the yen on Friday, the greenback closed in Wellington today at 121.93 yen. The euro slipped to US97.01c from its close on Friday of US98.24c.
On the crosses at 5pm the kiwi traded at A85.96c, 57.46 yen (56.93), 30.40 pence (30.45), 0.7129 Swiss francs (0.7096), and 0.4856 euro (0.4836).
The aussie was buying $NZ1.1634 ($NZ1.1616).
On the money market, 90-day bills were at 5.89 per cent (5.88), the trade-weighted index was at 54.22 (54.24) and the monetary conditions index was flat at minus 370.
The April 2004 bonds were at 5.63 per cent (5.65), the November 2006 bonds were at 5.97 per cent (5.99), and the November 2011 bonds were at 6.16 per cent (6.17).
- NZPA
<i>Currency:</i> Kiwi on sliding slope in holiday-thinned trade
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