The New Zealand dollar surged above US55c again today after Reserve Bank Governor Alan Bollard said that the unit had risen to "more normal" levels.
His comments, in a speech titled "Making sense of a rising exchange rate", were just the elixir the currency needed after a dovish statement accompanying yesterday's interest rate review hinted at a rate cut in the near term, unsettling currency investors.
Dealers said today's speech reduced the risk that the bank would ease rates - a move that would reduce the high interest rate differential that has made New Zealand such an attractive investment destination.
At 5.75 per cent, New Zealand has the second highest cash rate in the world, behind Norway.
Some commentators had been hoping the Reserve Bank would look to use monetary policy as a means of halting the kiwi's rapid rise.
But Dr Bollard said the higher kiwi meant New Zealand products and assets were now priced more sensibly, although he added that the unit's rise had been uncomfortably quick.
He said the bank was conscious of exchange rates when setting monetary policy, but other factors were also at work.
Yesterday, the bank left the Official Cash Rate unchanged for the sixth month running, saying the domestic economy was more robust than predicted.
By 5pm today the kiwi was at US55.08c - more than half a cent higher than yesterday's US54.45c close and just shy of near four year highs around US55.50c hit earlier in the week.
Its Australian counterpart ended at US59.28c (US58.70c), while on the trans-Tasman cross the kiwi rallied slightly to A92.93c (A92.77c).
Offshore, the US dollar remained on the defensive today due to worries that the United States may attack Iraq soon despite growing opposition among its key allies.
In Asia, the euro edged up to $US1.0766, near its three-year high of $US1.0778 hit overnight. Here it closed locally at $US1.0762.
The greenback was buying 118.02 yen in late New Zealand trading, compared with 118.01 in Asia.
At 5pm New Zealand's trade-weighted index was at 60.56 (60.12), 90-day bank bills were at 5.84 per cent (5.81), and the monetary conditions index was at plus 178 (plus 138).
Against other major currencies the kiwi was buying 0.5116 euro (0.5082), 65.00 yen (64.67), 33.85 pence (33.66), and 0.7493 Swiss francs (0.7437).
The Australian dollar was at $NZ1.0762 ($NZ1.0780).
On the debt market the April 2004 government bonds were at 5.54 per cent (5.53 at yesterday's close), the November 2006s were at 5.69 per cent (5.56), the November 2011s were at 6.00 per cent (5.94), and the April 2013s were at 6.03 per cent (5.97).
- NZPA
<i>Currency:</i> Kiwi tops US55c on Bollard speech
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