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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.
Bollard will deliver a speech today at the Canterbury Employers Chamber of Commerce called "a Tale of Two Crises".
In Europe, talks between Greece and its private creditors about an agreement to lower the country's crippling debt load have resumed amid a report that the creditors would offer to accept a lower rate on new bonds. Italy sold 10-year bond yields below six per cent for the first time in seven weeks after the nation sold its maximum target at an auction of zero-coupon and inflation-linked debt, Bloomberg reported.
The US had some disappointing data overnight with the sales of new homes unexpectedly falling 2.2 per cent in December to a seasonally adjusted 307,000 unit annual rate, helping make 2011 the worst year on record for the industry. Economists polled by Reuters had forecast sales at a 320,000-unit rate. Earlier this week, US President Barack Obama said he will create a mortgage crisis unit, including Federal and State officials, to investigate wrongdoing related to real estate lending.
In New Zealand, Statistics New Zealand is set to release December merchandise export and import data this morning. These will provide further insight into fourth quarter gross domestic product, with Bank of New Zealand expecting the data to be positive.
The New Zealand dollar crept up to 77.08 Australian cents from 77 cents yesterday and rose to 62.48 euro cents from 62.31 cents. It was little changed at 52.18 British Pence from 52.16 pence yesterday and fell to 63.41 yen from 63.5 yen.
The trade-weighted index increased to 72.23 from 72.11 yesterday.