KEY POINTS:
The New Zealand dollar recovered from a hefty overnight fall to close the week just below US74c.
The kiwi fell against a range of currencies overnight as investors took note of concerns raised by the Reserve Bank against the strength of the kiwi.
The fall against a mildly strengthening greenback was particularly marked, with the NZ dollar falling from a near post-float high above US74.80c around 5pm to open at US73.70c. It ended on US73.95c.
Traders said the Reserve Bank initially looked to have succeeded in unsettling the market by yesterday describing the New Zealand dollar exchange rate as exceptional and unjustified as it raised interest rates 25 basis points to 7.75 per cent.
Those comments meet two of the criteria used by the Reserve Bank to decide whether to intervene in foreign exchange markets.
However, some buyers were unable to resist the interest rates on offer and the kiwi far from entering a free-fall, rebounded.
While most analysts believed Reserve Bank currency intervention was unlikely, the market appeared to have heeded the warning, ANZ Bank said.
The kiwi weakened against other trading partner currencies, but not by much. It finished the week on A89.62c from A89.72c at 5pm yesterday, while the trade weighted index fell to 71.72 from 72.20.
In the major currencies, the yen fell to a record low against the euro after a larger-than-expected drop in Japan's core consumer prices reinforced expectations that the Bank of Japan will raise interest rate only gradually.
The US dollar held up against the euro, staying away from its all-time low against the single currency, as investors awaited US economic growth data for clues about the Federal Reserve's next monetary policy move.
Data on Friday showed Japan's core consumer price index declined 0.3 per cent in March, compared with forecast 0.2 per cent slide.
Mitsuru Sahara, a senior trader at the Bank of Tokyo-Mitsubishi UFJ said the yen's status as a funding currency in carry trades was seen set until the end of the year.
In the carry trade, investors borrow low-yielding currencies such as the yen to buy higher-yielding assets abroad such as the kiwi dollar.
Carry trades have helped push the yen down to a record low against the euro and a decade low against the Australian dollar.
- NZPA
