KEY POINTS:
The New Zealand dollar soared against a sagging US dollar overnight - good news for Kiwis heading on overseas holidays but ramping up the pain being felt by New Zealand exporters.
Trading in New York overnight took the dollar through the US73c mark according to Reuters, briefly touching
US73.05c, just one cent shy of a post-float high of US74.18c in March 2005.
By 8am this morning the New Zealand dollar was down slightly at US72.98c.
The New Zealand dollar also came within a whisker of 2005 highs on its yen cross rate, ANZ said.
The local currency was boosted yesterday by expectations of further interest rate rises after the Quarterly Survey of Business Opinion (QSBO) compiled by the NZ Institute of Economic Research (NZIER) showed persistent inflationary pressures in the economy.
The BNZ says there is a 50:50 chance of two 25 basis point hikes in interest rates by June, which would put the official cash rate at 8 per cent.
ANZ said the Australian dollar was also rallying strongly against the weak US dollar and strong business confidence data in Australia also increased the chances of a rate hike there. Corporate merger activity in Australia is also boosting the equity market and demand for the currency.
The New Zealand dollar was in part riding on the coat tails of the Australian dollar.
The Australian dollar was at US82.63c this morning from the US82.28c at 5pm yesterday in New Zealand. The kiwi dollar rose to A88.30c on its Australian dollar cross from the A88.07c at 5pm yesterday.
ANZ said the next target for the kiwi dollar on its US cross was US73.28c.
"Without supporting offshore factors the New Zealand dollar cannot correct let alone 'collapse' as some would wish," ANZ said.
Against yen, the kiwi was at 86.90 yen from 86.27 yen at 5pm yesterday.
BNZ said there had been aggressive buying overnight on the New Zealand dollar/yen cross by custodial and investment names.
"The usual mixture of hedge funds and leverage-type accounts were also active New Zealand dollar buyers and this steady demand saw the NZD/USD cross trade briefly above US73.00c," BNZ said.
In New York, the US dollar dropped to a two-year low against the euro on Tuesday on persistent worries about the health of the US housing market and concerns a trade dispute between the United States and China is escalating.
Dollar bears are betting that a weaker housing market will prompt the Federal Reserve to cut interest rates as early as mid-year, reducing the greenback's appeal to investors hunting for high yields.
The yen hit a record low against the euro after the Bank of Japan left interest rates on hold at 0.5 per cent -- the lowest rate in the industrialised world -- and gave no sign that Japanese rates will rise anytime soon.
Against the dollar, the euro was up 0.5 per cent on the day at $1.3425 after climbing to a peak of $1.3457, the highest level since March 2005.
The European Central Bank holds a monetary policy meeting this week. The ECB is expected to leave rates on hold at 3.75 per cent on Thursday, before raising them again this year, perhaps in June or sooner.
In New York the Australian dollar rose to its highest level since 1990 against the US dollar. News that Australia's Rinker Group had told its shareholders to accept a US$14 billion Mexican takeover bid helped boost the currency.
This morning the Reserve Bank of Australia's trade weighted index (TWI) was at 67.3 from yesterday's close of 67.1. It last closed above this level in February, 1989.
- NZPA/NZ HERALD STAFF
