KEY POINTS:
The New Zealand dollar closed stronger today, taking comfort from firmer equity markets.
The kiwi still traded a wide range between US69.25c to US70.05c, but that was a much smaller range than previous recent sessions.
It closed on US69.55c against US69.13c yesterday.
The Debt Management Office announced it was selling an extra $100 million in Thursday's government bond tender, which should further alleviate liquidity tightness.
Banks use government bonds as collateral. During the credit crunch of the past month, bonds have been hard to come by.
"Global market events have led to a build-up of demand for government securities over a very short period of time. In response, the additional bonds will be offered in order to help satisfy that demand," said DMO treasurer Philip Combes.
An analyst said there had been a rush for short-term government paper amid a tightening of liquidity in the market, especially after some banks had failed to secure enough Treasury bills at an auction earlier today.
Westpac currency strategist Michael Gordon said markets are looking for signs the credit crunch crisis was ending.
The US Federal Reserve's move to ease the discount rate on Friday had revived confidence. Mr Gordon said the market had largely priced in a Fed Funds Rate easing and there was potential for market to disappointment.
"All of this recovery is predicated on the view that they are going to be cutting rates, so if they disappoint, then it could be back to more selling again."
The Fed is not due to review the Fed Funds Rate until September 18 but there is a strong view in the market they could act before then.
"If they don't move then you could see investor confidence fall back again."
The kiwi eased against the Australian dollar, closing at A86.72c from A86.87c. The trade-weighted index rose to 67.57 from 67.15.
In major currency action, the yen gave up early gains and drifted lower against the US dollar as Asian stocks extended their rally after the Federal Reserve's discount rate cut late last week.
Dealers said investors' risk appetite stayed subdued as there is uncertainty whether the US central bank's action will succeed in restoring confidence in credit markets.
Investors await a meeting between Federal chairman Ben Bernanke, Treasury Secretary Henry Paulson and Senate Banking Committee chairman Chris Dodd on Tuesday at which they will discuss conditions in financial markets.
Reuters currency rates:
5pm today 5pm yestserday
NZ dlr/US dlr US69.55c US69.13c
NZ dlr/Aust dlr A86.72c A86.87c
NZ dlr/euro 0.5166 0.5120
NZ dlr/yen 79.99 79.29
NZ dlr/stg 35.02p 34.87p
NZ TWI 67.57 67.15
Australian dollar US80.22c US79.59c
Euro/US dollar 1.3468 1.3499
US dollar/yen 114.92 114.72
- NZPA
