The New Zealand dollar found its wings again yesterday afternoon, spiking to a two-year high of US48.10c.
By 5pm the kiwi was at US48.06c from US47.75c late Thursday while its aussie trading mate was at US56.84c (US56.51c).
Deutsche Bank currency dealer Tim Robinson said the kiwi was buoyed by bullish comments from Australia's Reserve Bank governor Ian Macfarlane.
Mr Macfarlane indicated the Australian economy was growing at a healthy clip, saying a further round of interest rate rises would be necessary to prevent the economy from overheating.
"We believe that if monetary policy maintained its present stance for too much longer there is little risk of a serious slowdown, but a high risk that the economy in time would overheat," Mr Macfarlane told the house committee on economics.
Economists interpreted his statement as a sign the central bank will hike interest rates by another 25 basis points at next week's review. The RBA lifted the cash rate a quarter point at the start of the month to 4.5 per cent after cutting rates by 200 basis points over the course of 2002.
"After an initial slump in the kiwi on the back of a weaker aussie we've seen kiwi and aussie do very well on the back of hawkish comments from Mcfarlane about the Australian economy," Mr Robinson said.
"Everything's adding up in the kiwi's favour from an indirect perspective."
The kiwi also benefited from comments from United States Treasury officials that the US dollar, although weakened, was only a touch off its highs and it was not time to press the panic button yet.
"If the US is saying the US dollar is still strong and they're believing in a strong dollar policy, there's potentially a lot further for the US dollar to fall before the States is even going to possibly look at intervening," he said.
"This is very kiwi positive/aussie positive. Potentially we've got a big figure like US50c, US53c or even US55c written all over the kiwi eventually.
"We've had an enormous move and one of the things about foreign exchange markets is that they invariably tend to go a lot further than you would think."
Mr Robinson said those targets could be reached in the next 12 to 18 months.
"It's not going to happen overnight and its not going to be a one way trend but by the same token I don't think the kiwi's going to go back to US45c in the next year.
"The kiwi was cheap and it has corrected, but now people are saying the US dollar is expensive and that's going to correct. Kiwi's up 20 per cent, maybe we go another 20-30 per cent with the US dollar correction."
Overnight he expected the kiwi to range between US47.90c to US48.35c. Trading would be quiet with the first World Cup football game set for kickoff in South Korea overnight.
"London's going to be a non-event," Mr Robinson said.
In other big economic news yesterday Moody's Investors Service cut Japan's long-term local debt rating by a bigger-than-expected two notches, citing ballooning debt and the likelihood it will rise further.
Moody's cut its local currency rating to A2 from Aa3, but maintained Japan's long-term foreign currency debt rating at Aa1. It said the outlook for both ratings was stable.
The markets had been on tenterhooks for the rating decision but reacted mildly when it came.
In Japan the US dollar rallied slightly to 123.40/50 yen from 123.25 yen before Moody's announcement. Here it closed at 123.17 yen, much weaker than Thursday's 124.28 yen close.
On the crosses at 5pm, the kiwi traded at A84.57c (A84.46c at Thursday night's close), 59.20 yen (59.37) 32.75 pence (32.65), 0.5112 euro (0.5098), and 0.7487 Swiss francs (0.7487).
The aussie was buying $NZ1.1823 ($NZ1.1834).
The monetary conditions index tightened to minus 240 (minus 260), the trade-weighted index was at 55.66 (55.48) and 90-day bank bills were at 5.87 per cent (5.88).
On the debt market yields the April 2004 bond yields were at 6.12 per cent (6.09), the November 2006s at 6.60 per cent (6.58), and the November 2011s at 6.75 per cent (6.74).
- NZPA
<i>Currency:</i> Kiwi tackles two year high of US48c
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