KEY POINTS:
The New Zealand dollar powered to a six month high early this morning, dragged up by a resurgent Australian dollar.
The aussie jumped ahead of the Australian central bank's decision to raise its official cash interest rate 25 basis points to 7 per cent, the highest since 1996.
The bank cited significant inflation pressures on the Australian economy, for the rise that had been widely expected by investors.
The kiwi hit multi-week highs against the greenback, euro and yen, hitting a six-month high against the US dollar of US79.68c from US79.14c at 5pm yesterday. It eased back to close on US79.21.
Against the euro, the NZ dollar hit an eight-week high of 0.5378 but eased back to yesterday's closing level of 0.5344. It made a three-week high against the yen of 85.11 but again eased back to yesterday's closing level of 84.56.
Against the Australian dollar, the kiwi eased to A87.39 from A87.53c at 5pm yesterday as the Australian dollar rose to US90.57c from US90.43c.
The NZ dollar trade weighted index closed unchanged on 72.48.
ANZ bank said that while volatility was still high on world markets, yield demand had picked up with the Antipodean currencies well sought.
The kiwi had been riding on the aussie's coattails and Australia's rate hike together with hawkish rhetoric opened the door for another rate move in March. That would keep both the aussie and kiwi underpinned.
New Zealand's stronger than expected wage data today meant there was no prospect of NZ rates falling any time soon.
As well, the Reserve Bank of Australia, the Bank of England and the European Central Bank are due to meet and dealers will be focusing on whether they are concerned about the severity of the US slowdown and whether it will affect their economies.
If all those banks warn about slowing conditions down the road, then investors' willingness to take risks could suffer, hurting higher-yielding currencies such as the NZ dollar and helping low-yielding units like the yen, ANZ said.
Sharada Selvanathan, a currency strategist at BNP Paribas in Hong Kong said today's stream of Australian data showed that more needs to be done by the RBA to cool an overheating economy.
Meanwhile, the Bank of England is seen cutting rates by a quarter-point to 5.25 per cent this week, in what would be its second such move in the past three months.
While the European Central Bank is expected to keep policy on hold at 4 per cent and emphasise its worries about price pressures, investors believe the deteriorating global outlook will prompt the ECB to cut rates towards the end of the year.
"Until the uncertainty surrounding domestic and global prospects resolves itself, we expect the ECB and BoE will remain cautious about easing policy in the face of upside risks to inflation," currency strategists at Barclays Capital said in a note to clients.
The performance of stock markets remains a driver of currencies, with any equity gains seen as giving the green light for market players to put on carry trades - borrowing funds in low-yielding currencies like the yen to buy higher-yielding currencies like the kiwi.
Rates at 5pm today/5pm yesterday:
NZ dlr/US dlr US79.21c US79.14c
NZ dlr/Aust dlr A87.39c A87.53c
NZ dlr/euro 0.5345 0.5344
NZ dlr/yen 84.57 84.56
NZ dlr/stg 40.17p 40.22p
NZ TWI 72.48 72.48
Australian dollar US90.57c US90.43c
Euro/US dollar 1.4814 1.4807
US dollar/yen 106.77 106.85
- NZPA