The New Zealand dollar touched a fresh a three-month high against the greenback after the Federal Reserve chairman Ben Bernanke announced an inflation target.
The New Zealand dollar rose to 81.89 US cents just after 8.30am, having climbed as high as 82.35 cents, from 81.66 cents at 5pm yesterday.
The Fed's Bernanke sparked political backlash following policymakers decision to set a long-term goal of 2 per cent inflation, and forecast price increases would fall short of that target this year and the next. The kiwi initially rallied after the Fed's announcement to extend a previous pledge to keep interest rates low until the middle of 2013 to at least late 2014 yesterday morning, as more than two years of economic growth failed to push unemployment below 8.5 per cent. Still, the prospect of an inflation target has some traders nervous.
"All it does is create another bubble down the track," said Tim Kelleher, head of institutional FX sales NZ ASB Institutional. "All the currencies have had a massive run since Christmas and they are all looking over stretched," which may see the kiwi dollar pull back, he said.
Kelleher said Reserve Bank Governor Alan Bollard's decision to keep the official cash rate at 2.5 per cent was "absolutely as expected." The Reserve Bank said instability in global financial markets is a continuing threat to local bank funding costs, and New Zealand's economic recovery may be constrained by delays to the Christchurch rebuild, with recent gains in the currency holding down returns on elevated commodity export prices.
