6.25pm
The kiwi dollar strengthened today in a quiet forex market while the US market was out for the Labor Day holiday.
The kiwi closed at US64.86c from US64.80c at 5pm yesterday, having traded in a range of US64.65c to US65c overnight.
The Australian dollar firmed to US69.42c from US69.12c and the New Zealand-Australian dollar cross eased back from close to its highest in nine years -- to A93.44c from A93.74c.
The euro ended at US$1.2069 (US$1.2052) while the greenback was fetching 109.80 yen (110.31 yen).
Westpac Bank said in a research note that the New Zealand dollar was overvalued against the Australian dollar although it assesses it won't begin to realign until the fourth quarter.
The kiwi had been trading between 3 and 6 per cent above its fair value on the cross rate since March 2002, the bank's senior currency strategist Johnathan Bayley said.
"Fair value is estimated at A89c, indicating the cross is still at least 4 per cent above where the economic fundamentals say it should be," he said.
Westpac calculates fair value on five factors: commodity prices, 10 year bond yields, external liability positions, relative productivity, and output gaps.
The model backed the kiwi's recent strengthening trend against the Aussie, but indicated there should have been little overall change between June 2003 and June 2004, during which time it appreciated 4.5 per cent to A90.98c from A87.10c.
Mr Bayley said looking forward the kiwi's fair value for the fourth quarter was estimated at A86c, which was in line with expectations of the relative interest rate levels of the central banks in the two countries.
"Looking further out our model picks a general trend lower in NZD/AUD through 2005, consistent with the outlook for relative growth, policy rates, and commodity prices," he said.
In the short term, the local market has factored in a rate rise on Thursday but eyes will be on the wording of the Reserve Bank's statement to assess whether five rate rises this year will be enough.
On the other crosses, the kiwi was buying 0.5375 euro (0.5377) 36.38 British pence (36.47), 71.25 yen (71.47), and 0.8240 Swiss francs (0.8233).
The trade weighted index closed on 66.40 (66.41), and the monetary conditions index at plus 712 (716).
In the money market, 90-day bank bill yields remained unchanged at 6.58 per cent while in the bond market the yield curve was nearly flat. The February 2006 were at 6.24 per cent (6.24), July 2009s on 6.23 per cent (6.24) and April 2013s on 6.23 per cent (6.23).
- NZPA
<i>Currency:</i> NZ dollar gains on Greenback while US holidays
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