KEY POINTS:
Offshore investors who have bought $2.53 billion of uridashi and eurokiwi bonds will tomorrow decide whether to roll over their maturing investments or join the flight from the NZ dollar.
The approaching deadline will be causing Finance Minister Michael Cullen and Reserve Bank Governor Alan Bollard major headaches.
Market observers will inevitably read the decision by offshore investors as a verdict on the extent of their confidence in the New Zealand economy.
If enough offshore investors pull out, the value of the volatile NZ dollar can be expected to fall further, and the cost of wholesale funds from offshore markets will rise, putting upwards pressure on interest rates.
However, if sufficient investors decide to maintain an exposure to the NZ dollar, New Zealand may be able to ride out the credit crunch crisis without the need for intervention by the Reserve Bank at this stage.
There's a lot riding on the answer.
The NZ dollar recovered slightly yesterday to close out at just under US70c, after the Federal Reserve took emergency action to stabilise credit markets by cutting the discount rate half a per cent to commercial banks and injecting another US$6 billion into the financial system.
The Reserve Bank is monitoring conditions carefully and is standing by to inject extra liquidity, if necessary, into the financial system to ensure credit does not dry up.
