KEY POINTS:
The kiwi dollar went for a wild ride ride today, first jumping one US cent after the US Federal Reserve cut rates by half a percentage point, as expected, and then shedding US1.6 cents.
The kiwi jumped from US78.15c to US79.20c shortly after the Fed made its move and signalled another cut ahead, and then it fell back to US77.55c as equities slumped, before recovering to close near its opening on US78.08c.
The Fed's cumulative 1.25 percentage point reduction in interest rates in less than two weeks ranks among the most abrupt rate-cutting sprees in modern Fed history.
The Fed's latest easing came on the heels of data showing that the world's biggest economy grew 2.2 per cent for all of 2007, its weakest expansion in five years.
"People remain bearish about the dollar as data painted a gloomy picture of the US economy, while the Fed is likely to lower interest rates again," said a trader at a Japanese bank.
Despite expectations for additional rate easing that would further erode the dollar's yield appeal for investors, dealers were careful about selling the US currency too aggressively ahead of a monthly employment report on Friday.
A Wellington dealer said the kiwi would continue to sway to the tune of sharemarkets, which are seen as a barometre of risk appetite.
"We are hostage to whether the Dow is in favour or out," he said.
While the market was satisfied with the Fed's rate cut, it was what happened ahead that mattered, he said.
The kiwi was tagging after the Australian dollar which was far more influenced by the Dow than the kiwi.
The Australian dollar ended the session on US88.85c against US88.79c at 5pm yesterday. The kiwi gained on the cross to A87.85c from A87.64c.
The kiwi got some support from strong export figures.
Figures from Statistics New Zealand put December exports at a monthly record of $3.68 billion, up 24.8 per cent from a year earlier with dairy and oil exports featuring..
Imports were up 10.7 per cent from a year earlier to $3.64b, the highest value for a December month, leaving a provisional $33 million trade surplus. Economists had forecast a $200 million deficit.
The New Zealand dollar trade-weighted index close on 71.59 compared with 71.49 at yesterday's close.
- NZPA
