The kiwi raced away to a near five-year high today as the Reserve Bank (RB) held firm on interest rates , but closed on its lows.
The RB left New Zealand's official cash rate at 5.75 per cent for the eighth straight month - giving New Zealand the highest rate of 11 leading central banks after Norway slashed its rate to 5.5 per cent overnight.
The no-change decision was expected by economists, but the kiwi rallied and debt fell after RB Governor Alan Bollard shot down investors' hopes of a rate cut any time soon.
Dr Bollard said cuts foreshadowed at the January rate review remained possible but would happen only after the bank saw inflation falling comfortably within its target range.
That hawkish view sent the kiwi up a third of a cent to US56.76c, just below a five-year high set last week, before it drifted back as traders returned attention to the possibility of war in Iraq.
By 5pm it was at US56.54c, compared with US56.37c at yesterday's local close.
The kiwi has jumped 32 per cent against the greenback in the past year, helped by interest rates 4.5 percentage points higher than in the United States.
Its Australian counterpart closed at US61.50c (US61.74c).
The rate decision also saw the kiwi rally against most of its major trading partners today. On the crosses at 5pm, the kiwi was buying A92c (A91.31c yesterday), 0.5150 euro (0.5135), 0.7513 Swiss francs (0.7493), 66.26 yen (66.11) and 0.3528 pence (0.3547).
On the money market, 90-day bills were at 5.80 per cent (5.73) after the RB kept its track for the benchmark rate at a flat six per cent for the forecast period, the monetary conditions index was at plus 247 (plus 229), and the trade weighted index was at 61.46 (61.30).
Short-dated bonds fell as traders reduced the chances of a rate cut at the next two reviews.
The April 2004 government bonds were at 5.37 per cent (5.34), the November 2006s were at 5.31 per cent (5.28), and the November 2011s were at 5.65 per cent (5.63).
- NZPA
<i>Currency:</i> Kiwi rallies on rate outlook, but closes on lows
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