The New Zealand dollar piled on over half a cent against the US dollar yesterday afternoon, storming US47c for the first time in 23 months.
By 5pm the kiwi was at US47.35c from US46.71c at Tuesday's close, having hit a high of US47.40c just before 4pm. Its Australian trading mate ended at US55.95c (US55.50c).
Bank of New Zealand currency strategist Stu Ritson said the kiwi was bolstered by strong support for dollar bloc currencies.
"Kiwi was the first to move but overall it's been a story of US dollar weakness really. Dollar-yen's lower, euro's higher. In Asian trade the US dollar has weakened.
"Kiwi has outperformed. It's broken through psychological resistance around US47c and pushed up to almost US47.50c," Mr Ritson said.
"Just when you think it can't go any further it takes off again."
Mr Ritson said the majority of buyers were short term traders - people covering their short positions.
"People that needed to buy kiwi and have been putting it off have essentially been buying it because it has moved higher. It's not so much exporters but people in the trading community."
Westpac currency strategist Jonathan Bayley said the kiwi was also boosted by data showing foreign ownership of New Zealand government bonds rose to $11.6 billion in April against $10.8 billion in March.
"This year has seen an impressive recovery in foreign buy-in, a trend consistent with our expectation that the New Zealand dollar will remain biased higher," Mr Bayley said.
Dealers said the next key level for the kiwi was US47.80c.
"US47.80c is major technical resistance. It's the Asian crisis lows and where the kiwi broke lower in early 2000 as well ," Mr Ritson said.
Overall the trend was clearly upwards, he added.
"From an interest rate perspective the kiwi is very much up there. The kiwi has been one of the best performing currencies this year because it is positioned for US dollar weakness, and it is also getting an additional yield pickup as well."
New Zealand's Official Cash Rate is currently at 5.50 per cent, against 1.75 per cent in the United States.
Consumers saw the first benefit of a higher kiwi yesterday afternoon as petrol retailers Shell and BP slashed their fuel prices by 2c a litre. The latest move reduces unleaded petrol to $1.089 a litre in most centres around the country, and premium unleaded to $1.1139 a litre.
Exporters are likely to be less pleased by the latest move as it makes their products less competitive in overseas markets.
One local dealer said most exporters were probably well covered for the rally, with hedge contracts in place at a lower rate.
"Obviously exporter returns are being eroded, particularly as commodity prices are declining as well, but my underlying feeling is that exporters are fairly well covered.
"It's more of a question of the sustainability of these levels, ie. does the kiwi go up to this level and then stay here for an extended period of time or is this an extension of the "hot money" or yield type flows that are quickly reversed," the dealer said.
Hot money is a pool of reasonably liquid cash that can be moved around the globe based on relative yields.
The kiwi also put on a strong show yesterday against the aussie, rising to A84.64c by 5pm from A84.17c at Tuesday's close.
"Kiwi offers higher yields so is probably a slightly more attractive proposition, relative to the aussie," Mr Ritson said.
On the other main crosses at 5pm the kiwi was buying 0.5127 euro (0.5087), 58.59 yen (58.83), 32.38 pence (32.06), and 0.7440 Swiss francs (0.7390).
The aussie was buying $NZ1.1815 ($NZ1.1881).
The monetary conditions index tightened to minus 279 (minus 314) and 90-day bank bills were at 5.87 per cent (5.86). The trade-weighted index - which measures the kiwi against a basket of major currencies - spiked to 55.24 (54.78).
On the debt market, the April 2004 bond yields were at 6.10 per cent (6.15 at Tuesday's close), the November 2006s were at 6.68 per cent (6.74), and the November 2011s were at 6.80 per cent (6.85).
- NZPA
<i>Currency:</i> Kiwi storms US47c
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