KEY POINTS:
The New Zealand dollar hit a fresh post-float high late yesterday as the market discounted the Reserve Bank's prospects or intention to drive the currency lower through intervention.
The kiwi peaked around 6.30pm yesterday at US76.58c, according to Reuters data, its highest level since being floated in 1985. It eased back this morning and was sitting at about US76.31 at 11.30am.
Throughout the session yesterday it threatened its previous record of US76.40c set earlier this month, just before the Reserve Bank clipped its wings for the first time in 22 years. It closed at US76.38c.
Royal Bank of Canada currency strategist Sue Trinh said the NZ dollar was buoyed by continuing demand from yield-hungry investors, a generally weaker US dollar and rising chances of another OCR rise.
Westpac currency strategist Michael Gordon said an initial dip below US76c early yesterday on broad US dollar buying gave way to an upswing on fresh demand, particularly from model-based traders.
"These are the guys that will trade on certain rules based on moving averages and relative yields. But the one thing they don't trade on is sentiment. You wouldn't expect them to be deterred by the threat of intervention because they're slightly more mechanical about it."
While other investors may be wary of further Reserve Bank activity, Gordon said: "I think people are starting to accept that intervention won't mean a lasting effect beyond the effect of seeing a large chunk of kiwi sold all at once."
The prospect of further intervention was "probably not as worrying as it was a week ago".
Trinh believed further intervention was not likely to drop the kiwi, nor was it intended to.
"The Reserve Bank's not out to achieve level shifts in the currency and they're certainly not targeting specific levels either. Their objective, as I understand it, is really just to lean against the pace of appreciation in the currency, to slow that momentum down a bit."
"The Reserve Bank's still got a big job ahead of them if they want to get on top of house prices and inflation and until they find an alternative tool all they've got is the official cash rate."
Next week is a big one for local data, including March quarter GDP, said Gordon. Economists were looking for about 1 per cent growth for the quarter while the Reserve Bank had forecast 0.8 per cent.
"So it seems like the Reserve Bank could be surprised on the upside, and that will keep the pressure on them to perhaps raise rates again in the future."
Flying along
* The kiwi reached a 22-year high of US76.57c last night.
* Carry trade activity drove it to a 20-year high of 94.55 against the yen.
