The New Zealand dollar made hefty gains today after the US Federal Reserve emergency move to slash the benchmark US lending rate in an attempt to allay market fears of a US recession.
The Fed's move to cut rates by three quarters of a percentage point was precipitated by a global equities market rout brought on by the effects of the credit crunch and fear of a US recession.
Having hit a three-month low against the greenback below US73.90c around 9pm yesterday, the kiwi climbed through the night to open at US76.50c. However, by the close it had fallen back to US75.97c on profit taking.
Dealers said the increased rate differential for the kiwi would keep it underpinned.
ANZ Bank chief dealer Murray Hindley said there had been talk the Fed would cut as early as last night but few expected a 75 basis point cut - the largest in over 23 years.
He said the market now wanted another cut as early as next week when the Fed next meets.
"The market may force the Fed's hand. It's a possibility depending on how equity markets react," he said.
New Zealand's central bank is scheduled to announce its six weekly review of interest rates tomorrow morning but no one expects governor Alan Bollard to ease rates. The best they can hope for, analysts said, is that he will moderate his expected hardline stance from hawkish to neutral.
A spokeswoman for Dr Bollard said the governor would not take questions on the reasons for his decision tomorrow.
The kiwi lost a little ground to the aussie after Australian inflation data came out at the top of the forecast range and pointing to a rate rise there next month or in March.
The cross rate finished on A87.62c from A86.65c at 5pm yesterday.
The Australian dollar ended on US86.69c against the greenback compared with US86.18c yesterday.
Against the yen the NZ dollar hit a four-month low below 78.20 yesterday, but as with the greenback, rebounded, to 81.62 at the opening. However, it eased back to the close on 80.94.
The trade-weighted index ended the day on 70.36 against 69.50.
Traders said today's market moves were centred on riskier assets such as stocks and high-yielding currencies like the kiwi, although many expect rallies in such assets to be short-lived.
A lot of people are now thinking it's a bear market, said Sean McGoldrick, head of forex trading at Morgan Stanley in Tokyo, saying riskier assets had retraced much of their earlier gains.
"The bounces that we've seen in risky assets have been short-covering rather than fresh longs," he said, adding that high-yielders may head lower if recession concerns escalate.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US75.97c US74.58c
NZ dlr/Aust dlr A87.62c A86.65c
NZ dlr/euro 0.5199 0.5173
NZ dlr/yen 80.94 79.36
NZ dlr/stg 38.82 38.48p
NZ TWI 70.36 69.50
Australian dollar US86.69c US86.18c
Euro/US dollar 1.4615 1.4445
US dollar/yen 106.56 106.28