KEY POINTS:
Buoyed by a wall of cash resulting from bonuses paid to Japanese workers this month, the New Zealand dollar hit a fresh 19-year high against the yen yesterday, to round out a tumultuous week.
The dollar briefly reached 94.71 against the yen early yesterday afternoon, surpassing the 94.69
mark it touched on Thursday, when it also hit a post-float high against the US dollar of US76.57c and its highest ever trade weighted index (TWI) level of 74.62.
The TWI measures the NZ dollar against a basket of New Zealand's major trading partners the US, the eurozone countries, Japan, Australia and Great Britain.
Last night the kiwi closed at 94.55, 74.50 on the TWI and US76.44c against the greenback, having traded around the US76.30c mark for most of the day. The New Zealand dollar is also riding high against the aussie, closing at A90.22c.
"People are reluctant to chase the kiwi higher, but they can't see a good reason to sell it either," said BNZ currency strategist Danica Hampton.
She said Japanese demand, which had been a strong driver of the local currency in recent days, was believed to be related to new Japanese investment vehicles.
The new investment funds, estimated to be worth about US$12 billion ($15.7 billion) had been set up to cater to an estimated $100 billion paid out to Japanese workers in bonuses.
"You never know what kinds of funds and assets they're going to invest these bonus payments into," said Hampton.
"Typically a lot of it has gone offshore, mainly because of low interest rates in Japan. In the last month there's been quite a high demand for high-yielding fixed income assets like uridashis and eurokiwis."
The New Zealand dollar's highs have come despite the Reserve Bank's recent intervention on the two previous Mondays.
While the first intervention on June 11 resulted in a 2 per cent fall in the local unit, the most recent, on Monday which the Reserve Bank has yet to confirm, had far less effect. "Some market commentators are saying the intervention is making it cheaper for these Japanese grannies to buy what they were going to purchase anyway," said Hampton.
Nevertheless there remained some uncertainty as to whether the Reserve Bank would again intervene.
Anthony Byett, managing director at a forex advisory firm fxmatters.co.nz, said dealers would probably be "a little bit more wary on Monday for the next few weeks because that is the time when intervention is most likely to have impact".
But a regular pattern of intervention would probably undermine its effectiveness. "As we've seen this Monday, interbank dealers will be more prepared now."
As investors chase high-yielding currencies, the British sterling has also hit a 26-year high against the greenback in recent months, the Canadian dollar a 30-year peak, and the Australian dollar an 18-year high and markets are becoming wary the Reserve Bank of Australia may step up its own currency intervention.
The RBA has been quietly selling Australian dollars it bought between 1997 and 2001 when it was openly intervening to support the currency.
The selling was stepped up in the first four months of the year to reach more than A$1 billion. Dealers suspect more has been offloaded since then.
- Additional reporting: Agencies
In demand
* The New Zealand dollar continues to rise, hitting a fresh 18-year high against the yen yesterday.
* Currency strategists say huge amounts of cash paid in bonuses to Japanese workers this month are fuelling demand for the high-yielding kiwi.
* Dealers remain wary of further Reserve Bank intervention, but say the impact may be muted.