Hopes yesterday that the kiwi dollar's relentless rise may be ending, were dashed today when it closed one US cent higher.
At 5pm, the kiwi was fetching US67.82c, 1.4 per cent higher than last yesterday's closing level of US66.87c.
Most of the action was in overnight trading when the euro and Australian dollar recovered and the kiwi hitched a ride.
Despite the big move, the market here was essentially on a trading hold during the day, waiting for the Reseve Bank's announcement on the cash rate tomorrow.
"The foreign exchange market has got no rate rise factored in, so if we see a rate hike here tomorrow you could see the kiwi quite aggressively bought," said Westpac's chief dealer in New Zealand Basil Payn. The Reserve Bank is in a bind -- wanting to cool the rampant property market by hiking interest rates, but knowing that such action will send the currency rocketing higher and further squeezing already hard-pressed exporters.
BNZ currency strategist Sue Trinh said it would be a "close call" as to whether the cash rate was lifted from the current 5.0 per cent.
"Either way, we expect that the bank is going to reinforce the fact that the next move in rates in New Zealand is going to be up," she said.
"That's going to be a hawkish stance, especially given an environment where global policy rates are all low."
The Australian dollar also caught a ride with the euro, rising to US77.82c (US76.88c).
The euro was boosted by stronger-than-expected German business confidence, lifting to US$1.2620 from US$1.2464 here yesterday.
The US Federal Reserve will tomorrow morning (NZT) review its benchmark interest rate, currently at a 45-year low of 1 per cent.
"The market is broadly expecting no change to the 1 per cent interest rate," Ms Trinh said.
The influential German Ifo economic research institute said its index rose to 97.4 in January, the highest in three years, from an upwardly revised 96.9 in December.
The US dollar steadied on three-year lows against the yen hit the previous day with players wary of intervention from the Bank of Japan to sell the yen. The dollar was trading at 105.64 against 106.09 here yesterday.
Meanwhile, the kiwi gained on all the crosses to be buying: A87.10 (A86.92c), 0.5370 euro (0.5365), 71.72 yen (70.99), 37.10 British pence (36.86), and 0.8418 Swiss francs (0.8407).
On a trade weighted basis, the New Zealand dollar was at 66.70 (66.21).
The monetary conditions index was at plus 611 (589), and 90-day bank bills were at 5.35 per cent (5.35), February 2006 bond yields were at 5.52 per cent (5.54), July 2009 bonds eased to 5.80 per cent (5.82 per cent), and April 2013 bonds yields fell to 5.95 per cent from 5.98 per cent.
- NZPA
<i>Currency:</i> NZ dollar jumps a cent as Euro rides high
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