The New Zealand dollar closed stronger yesterday, taking comfort from firmer equity markets.
The kiwi still traded a wide range, from US69.25c to US70.05c, but it was a much smaller range than recent sessions.
The dollar closed on US69.55c against US69.13c on Monday.
The Debt Management Office announcedit was selling an extra $100 million in Thursday's Government bond tender, which should further alleviate liquidity tightness.
Banks use Government bonds as collateral. During the credit crunch of the past month, bonds have been hard to come by.
"Global market events have led to a build-up of demand for Government securities over a very short period of time. In response, the additional bonds will be offered in order to help satisfy that demand," said Debt Management treasurer Philip Combes.
An analyst said there had been a rush for short-term Government paper amid a tightening of liquidity in the market, especially after some banks had failed to secure enough Treasury bills at an auction yesterday.
Westpac currency strategist Michael Gordon said markets were looking for signs the credit-crunch crisis was ending.
The US Federal Reserve's move to ease the discount rate on Friday had revived confidence. Gordon said the market had largely priced in a Fed Funds Rate easing, and there was potential for market disappointment.
"All of this recovery is predicated on the view that they are going to be cutting rates, so if they disappoint, then it could be back to more selling again."
The Fed is not due to review the Fed Funds Rate until September 18, but there is a strong view in the market they could act before then.
The kiwi eased against the Australian dollar, closing at A86.72c from A86.87c. The trade-weighted index rose to 67.57 from 67.15.
The yen gave up early gains and drifted lower against the US dollar as Asian stocks extended their rally after the Federal Reserve's discount rate cut late last week.
