KEY POINTS:
The New Zealand dollar eased back by the close of trading today after racing to a 10-month high of US69.10c.
ANZ Bank forecast the kiwi would soon rise above US70 cents, a level that is uneconomic for many exporters.
The kiwi closed on US68.86c compared with US68.79c at 5pm yesterday.
It has been rising against a weakening US dollar and in anticipation of a hawkish Reserve Bank's Monetary Policy Statement on Thursday.
Finance Minister Michael Cullen tried to talk the kiwi down this morning to little effect. He said the exchange rate remained "stubbornly high" and was putting downward pressure on the country's export sector.
The market is wary of Reserve Bank governor Alan Bollard hiking interest rates despite the economy considerably lagging the developed world and the high currency causing severe economic imbalances.
The kiwi has risen 15 per cent in the past four months since Dr Bollard's reversed his earlier signals that the tightening policy had run its course.
ANZ said while topside resistance at US69.20c looked vulnerable and rise above that level would be met with profit taking from recently established long positions.
With US dollar weakness looking set to continue, the NZ dollar cross against the greenback had US70c "written all over it", ANZ said.
The kiwi strengthened against all major currencies except the aussie where it was essentially steady. It closed on A87.42c compared with A87.49c at 5pm yesterday while the trade-weighted index rose to 67.37 from 67.30.
The US dollar had tumbled to a 20-month low versus the euro and a 14-year trough against sterling as weak data fanned fears US interest rates could soon fall even as euro zone and British rates were headed higher.
The dollar has plumbed the troughs against the euro, 14-year lows versus sterling and four-month lows against the yen on soft US data that suggests to many in the market the Federal Reserve will have to trim rates next year as the economy slows.
The euro has garnered additional support from expectations the European Central Bank will bump up rates by 25 basis points to 3.5 per cent on Thursday, and some economists predict another hike in early 2007.
But the speed of the dollar's fall, in which the currency lost around 3 per cent in value against the euro in less than two weeks, has raised concerns that the sell-off may have been overdone. That has prompted traders to tread cautiously.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US68.86c US68.79c
NZ dlr/Aust dlr A87.42c A87.49c
NZ dlr/euro 0.5172 0.5164
NZ dlr/yen 79.53 79.55
NZ dlr/stg 34.86p 34.77p
NZ TWI 67.37 67.30
Australian dollar US79.50c US78.66c
Euro/US dollar 1.3322 1.3320
US dollar/yen 115.35 115.64
- NZPA