KEY POINTS:
The New Zealand dollar rose today after an overnight dip but still closed below yesterday's level.
The rise coincided with Reserve Bank governor Alan Bollard's decision to leave interest rates on hold as expected. Traders said the kiwi's rise was more related to the Dow's recovery.
The kiwi
rose from an overnight low of US74.70c when the Dow index was minus 188, to end on US75.36c, having traded to a high of US75.68c. It closed yesterday on US75.59c.
ANZ chief dealer Murray Hindley said the market was schizoid.
"It's risk aversion versus carry trade and it flips around."
He said there was a tendency for the currency market to be equity watching in the morning and then trading more normally in the afternoon.
The kiwi lost ground on the Australian dollar - ending on A83.47c against A83.71c at 5pm yesterday - and Mr Hindley expects that trend to continued.
He said following yesterday's stronger than expected inflation data, Australia was expected to have two more rate rises while New Zealand was expected to hold rates steady.
Mitsuru Sahara, senior vice president of forex dealing at Mitsubishi UFJ Bank said the yen was likely to come back under selling pressure, "perhaps not so much against the dollar, but certainly against the Australian and New Zealand currencies".
Dr Bollard warned politicians to restrain their promises in the lead-up to next year's election on new spending or tax cuts.
He said fiscal policy was already contributing to inflationary pressure, despite ongoing surpluses in the Government's operating balance.
"Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation," he said.
BNZ head of research Stephen Toplis said the probability of further easing in fiscal policy was "around 100 per cent".
"This being so, the central bank will clearly be running a fine tooth comb over future fiscal spending," he said.
The US dollar was generally weak after Merrill Lynch & Co reported its biggest-ever quarterly loss - mostly due to bad investments related to risky subprime mortgages.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US75.36c US75.49c
NZ dlr/Aust dlr A83.47c A83.71c
NZ dlr/euro 0.5281 0.5293
NZ dlr/yen 85.95 86.54
NZ dlr/stg 36.81p 36.81p
NZ TWI 70.24 70.23
Australian dollar US90.28c US90.20c
Euro/US dollar 1.4269 1.4260
US dollar/yen 114.07 114.69
- NZPA
