KEY POINTS:
The New Zealand dollar gained on the Australian dollar today after tame inflation data there weakened the outlook for the aussie.
The kiwi closed the session on A89.72c from its A89.31c opening and against A89.45c at yesterday's close.
The Australian dollar fell to US81.87c against the greenback from US82.49c yesterday helping pull the kiwi to a US73.46c close from US73.79c yesterday.
Australia's central bank cut its forecast for underlying inflation this year to 2.5 per cent, bang in the middle of its target band and suggesting a much-reduced risk of a rise in interest rates.
It cautioned inflation would gradually rise back into the upper half of its 2 per cent to 3 per cent target range for 2008 and 2009.
Analysts said the message was that interest rates would be on hold.
"They seem to be suggesting we're in a perfect situation of solid growth and low inflation which is a great environment for equities," said Adam Carr, a senior economist at UBS.
Bill futures rallied as the market priced in a lower risk of a tightening this year, and that in turn knocked the Australian dollar down half a US cent.
The aussie was also hurt by a sharp widening in Australia's trade deficit to A$1.62 billion in March -- almost double market expectations.
The ANZ bank said comments by Finance Minister Michael Cullen yesterday had no appreciable effect of the kiwi.
In a pre-budget speech, Dr Cullen said the New Zealand dollar was unlikely to fall significantly until the central bank signalled an end to its monetary tightening policy.
There was no pain-free way of cooling robust domestic spending, which was generating inflation, but he was not happy with monetary policy penalising exporters.
The US dollar inched up against the euro as upbeat economic data helped it cling to three days of gains, as investors turned their eyes to the notoriously volatile US payrolls data due tomorrow.
Most investors still expect the Federal Reserve to cut US rates this year, but it would take a big softening in the US jobs market to shift the Federal Reserve's focus from bringing stubbornly persistent inflation down.
Trading was again thin with Japan and China on holiday and investors naturally nervous ahead of the US jobs report for April.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US73.46c US73.79c
NZ dlr/Aust dlr A89.72c A89.45c
NZ dlr/euro 0.5425 0.5424
NZ dlr/yen 88.39 88.69
NZ dlr/stg 36.97p 37.08p
NZ TWI 71.49 71.60
Australian dollar US81.87c US82.49c
Euro/US dollar 1.3542 1.3603
US dollar/yen 120.31 120.19
- NZPA