KEY POINTS:
Hopes the days of a high currency had passed took a heavy knock today as the kiwi briefly topped US71c.
Although it was unable to hold that level, closing on US70.90c, traders believe the short-term direction is up as shorts are squeezed and the US dollar begins another phase of weakness.
The United States Federal Reserve sent markets into a frenzy today when it held interest rates steady as expected but unexpectedly dropped a reference in its statement to possible further interest rate increases.
Though the Fed reiterated that inflation remained a concern, investors interpreted the language change as a sign that a US interest rate cut may be near.
The kiwi, which closed yesterday on US70.55c, rose to a peak of US71.12c shortly after the Fed announcement, before easing back.
ANZ bank said the Fed's decision clearly opened the door for a higher NZ dollar.
Selling interests at US71c had managed to hold the kiwi at that level in an environment where the greenback was plagued with weakening factors.
The kiwi has been piggy-backing the Australian dollar which has soared to 10-year highs. The Australian cross rate held steady around A87.85c.
The trade weighted index closed on 69.19 from 68.99.
"It seems the FOMC (Federal Open Market Committee) is signalling that growth may slow enough to address inflationary pressures," said currency strategists at Morgan Stanley in a note to clients.
"Until we receive more clarity from Fed officials and the data path, we think the dollar will remain under pressure, particularly against higher yielders."
The Australian dollar hit a 10-year high of US80.88c.
Investors anticipate the rate differential between Australia and the US will underpin the aussie, as they expect Australia's central bank to raise rates as early as next month from the current 6.25 per cent.
Rates:
5pm today 5pm yesterday
NZ dlr/US dlr US70.90c US70.55c
NZ dlr/Aust dlr A87.95c A87.88c
NZ dlr/euro 0.5297 0.5299
NZ dlr/yen 83.35 82.75
NZ dlr/stg 36.03p 35.97p
NZ TWI 69.19 68.99
Australian dollar US80.62c US80.26c
Euro/US dollar 1.3388 1.3318
US dollar/yen 117.50 117.28
- NZPA
