NZ dollar ease from two-week peak

The New Zealand dollar eased from a two-week high near US$73.20c early today, but one market analyst suggests it's only a brief respite before the kiwi heads higher again.

After easing from its early morning peak to US72.81c at 8am, the kiwi had slipped to US72.72c by 5pm.

The kiwi surged ahead yesterday after the Reserve Bank kept the official cash rate at 2.5 per cent but said that if the economy continued to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010. That is sooner than it was previously indicating.

Today, Reserve Bank Governor Alan Bollard told Radio New Zealand the shift had been "fairly subtle", and he thought there had been "a bit of an overreaction" to it, particularly on the foreign exchange markets.

BNZ Capital senior strategist Danica Hampton said in a market commentary that the New Zealand dollar had spent the past three weeks trading choppily between US70.50c and US73.00c and was now at the top end of that range.

"This morning's comments from Governor Bollard (that currency markets overreacted to yesterday's RBNZ statement) may well encourage a bit of profit-taking as we head into the weekend," she said.

While investors remained convinced that the outlook for growth in New Zealand in 2010 was brighter than our trading partners, the underlying trend in the kiwi was expected to be higher.

"As such, we suspect we'll see the NZD/USD push higher in coming weeks. In this regard, it's worth noting, the recent widening of NZ-US three-year swap spreads (associated with the sell-off in NZ interest rates) has seen the implied `fair value' range for NZD/USD climb to 0.7350-0.7550," Ms Hampton said.

The NZ dollar also rose earlier today to a three-week high against the Australian and European currencies.

From A79.12c at the local close yesterday against the Australian dollar, the kiwi peaked around A79.75c before easing to A79.31c at 5pm. From 0.4914 euro it peaked around 0.4970, then slipped back to 0.4959.

The NZ dollar was also up to 64.50 yen at 5pm from 63.70 24 hours earlier, while the trade weighted index climbed finished the local session at 65.21 from 64.88 at 5pm yesterday.

- NZPA