KEY POINTS:
The New Zealand dollar closed almost a cent higher than yesterday as the US dollar came under renewed pressure on a view US rates would be cut aggressively this month.
US short-term interest rate futures showed about a 75 per cent perceived chance of the Fed lowering its
benchmark overnight lending rate on March 18 by 75 basis points from 3 per cent.
The kiwi closed on US80.45c from US79.44c yesterday when it was sold heavily as stock markets around the world were beaten down.
An aggressive US rate cut would further reduce the allure of the dollar in favour of higher-yielding currencies such as the euro or the Australian and New Zealand dollars.
The Reserve Bank of Australia today lifted rates to a 12-year high of 7.25 per cent from 7 per cent as was universally expected.
The Australian dollar dipped to session before the rate verdict after retail sales which came below expectations and wider-than-expected current account deficit figures.
The New Zealand dollar rose on the cross rate to A86.17c from A85.87c at the opening and A85.36c yesterday. Earlier, it had sunk to a 3-1/2-month low around A85.10c.
The Australian dollar was sold on the rates decision as analysts assessed the RBA was coming to the end of its tightening cycle.
"Clearly they remain worried about the inflation outlook, and that we need, as they say, a significant slowing in demand. But they've certainly highlighted that there's a lot of tightening of financial conditions in the system," said Citi economist Stephen Halmarick.
"I suspect that suggests they think they may be coming towards the end of the cycle. No change in our view, we've got a pause in April and then a final rate hike in May after CPI (consumer price inflation)."
New Zealand's Reserve Bank on Thursday is expected to talk tough but leave rates unchanged when it publishes its quarterly Monetary Policy Statement.
Other central banks meeting this week include the ECB, the Bank of England and the Bank of Japan, all of which are expected to hold rates steady.
Fed chairman Ben Bernanke is due to speak later today and analysts expect he will reiterate his willingness to cut rates.
The ANZ bank said initial selling down of the NZ dollar to support at US79.25c yesterday was absorbed easily by local demand and familiar Asian yield buyers.
The New Zealand dollar trade-weighted index rose to 72.32 from 71.42 at the same time yesterday.
Currency rates:
NZ dlr/US dlr US80.45c US79.44c
NZ dlr/Aust dlr A86.17c A85.36c
NZ dlr/euro 0.5295 0.5226
NZ dlr/yen 83.20 81.90
NZ dlr/stg 40.53p 40.05p
NZ TWI 72.32 71.42
Australian dollar US93.28 US93.07
Euro/US dollar 1.5191 1.5203
US dollar/yen 103.43 103.09
- NZPA