A record was broken today with the NZ dollar reaching $74.91 US
Wednesday April 18, 05:19 PM
NZ dollar cracks post float high
The New Zealand dollar cracked its post float high with ease today in frenetic trading after ugly news in inflation data was revealed.
In trading that set screens pulsating, the kiwi was initially sold when the headline CPI number came in on expectations. But then, when non tradeables inflation was shown to have jumped 1.2 percent in the quarter, it was all on as traders reckoned on the Reserve Bank hiking interest rates once, if not twice, more by mid-year.
The kiwi zoomed past the old high of US74.65c set in March 2005 to touch a peak of US74.91c. It eased back to US74.70c compared with US73.93c at the same time yesterday.
The kiwi was strong across the board, easily jumping the A89c hurdle against the aussie to end on A89.31c from A88.76c yesteday.
Against the yen the kiwi reached a new near 17-year peak of around 88.90 to the NZ dollar soon after midnight, but it closed on 88.67.
The New Zealand trade-weighted index rose to its highest since December 2005, closing on 72.13 from 71.66 yesterday.
Dealers said that until RB governor Alan Bollard got on top of the domestic economy and signalled he was done with hiking interest rates the kiwi would remain underpinned.
New Zealand's interest rates -- already the highest in the developed world -- are what have been attracting investors to the kiwi dollar.
"The case for a rate rise was already compelling although history tells us it will be a fine call," Bank of New Zealand chief dealer Mike Symonds said.
He said given investors' appetite for high returns and willingness to take risks, combined with high prices for New Zealand commodities and the weakness of the US dollar, the kiwi was set to go higher yet.
There is a view that if the Reserve Bank raises rates once or twice more, then all it will further underpin the kiwi, he said.
"It's very difficult to argue against that in terms of the short-term outcome."
However, BNZ believes Dr Bollard should act aggressively to show he is getting on top of inflation in the domestic economy and once offshore investors know the economy is slowing, they will desert it in quick time.
Meanwhile, in major currency trading, the US dollar hit a 15-year low against sterling as investors flocked to currencies whose yields are expected to rise further, while they believe the Federal Reserve will begin cutting interest rates later in the year.
British data showing a jump in consumer prices stoked expectations for a rate hike, driving sterling above $US2 for the first time since 1992 when Britain was forced to exit the Exchange Rate Mechanism, the precursor to the euro.
Rising inflation around the world has stirred expectations for central banks from Australia, New Zealand to Britain to lift rates to fight price pressure, luring yield-hungry investors.
"The market is focusing on currencies with prospects of rate hikes such as the euro and the Australian and New Zealand dollars," said Minoru Shioiri, senior manager of forex trading at Mitsubishi UFJ Securities.
"The dollar, on the other hand, was not helped by the weak US data," Shioiri said.
The New Zealand dollar, known by traders as the kiwi, today hit a post-float high of US74.91c. Below is a chronology of its journey to that level:
* July 1967 - New Zealand dollar replaces pound at rate of two dollars to the pound and one NZ dollar to $US1.39.
* 1971 - US devalued its dollar relative to gold, leading New Zealand to peg its dollar at a value of $US1.216 with a 4.5 percent fluctuation range.
* July 1973 to March 4, 1985 - NZ dollar's value was determined from a trade-weighted basket of currencies.
* 1973 - Kiwi hits an all-time high of just under $US1.50 as New Zealand commodity prices soar and New Zealand experiences record balance of payments surpluses.
* 1974 - Kiwi is devalued to around $US1.35 in the wake of slump in wool, meat and butter prices after Britain enters the European Common Market and the first oil shock sends price of petrol soaring.
* July, 1984 - A run on the NZ dollar following the election of Labour government which indicated it would devalue by 20 percent. Currency trading is suspended when outgoing prime minister Sir Robert Muldoon initially refused to devalue. After provoking a constitutional crisis he finally agreed to devalue 20 percent on July 20.
* March 4, 1985 - The kiwi is floated at US44.44c, 68 percent below today's level. Against the Australian dollar it has gained 43 percent from A62.4c, while against the Swiss franc it has fallen 28.3 percent and against the yen it has fallen 25 percent.
* 1985-1988 - Against expectations the kiwi rises strongly post float as Reserve Bank restricts supply of money and interest rates are ramped up over 25 percent. The kiwi continues to rise despite the 1987 sharemarket crash and hits US72c as the Reserve Bank is given operational independence with a mandate to squeeze inflation out of economy.
* 1993 - The kiwi falls to US51c as recession hits in wake of Finance Minister Ruth Richardson's "mother of all budgets".
* November 1996 - The economy rebounds, peaking at 6.5 percent economic growth in mid-1994. The kiwi rises to US72c as investors pour money into New Zealand to capture high interest rates used to try and dampen demand.
* December 1996 to November 2000 - Kiwi falls 45 percent in a move precipitated by appointment of NZ First leader Winston Peters to the position of treasurer and a loosening of the inflation target. The Asian financial crisis in July 1997 and the disintegration of National-NZ First government followed by election of Labour in 1999 saw the kiwi drop to a nadir of US39.24c in October 2000.
* 2002-2007 -- New Zealand dollar rises 80 percent as New Zealand experiences one of its longest periods of uninterupted economic growth in living memory. The Reserve Bank is forced to hike interest rates 10 times in three years to try and quell inflation pressures.
NZ dollar cracks post float high
The New Zealand dollar cracked its post float high with ease today in frenetic trading after ugly news in inflation data was revealed.
In trading that set screens pulsating, the kiwi was initially sold when the headline CPI number came in on expectations. But then, when non tradeables inflation was shown to have jumped 1.2 percent in the quarter, it was all on as traders reckoned on the Reserve Bank hiking interest rates once, if not twice, more by mid-year.
The kiwi zoomed past the old high of US74.65c set in March 2005 to touch a peak of US74.91c. It eased back to US74.70c compared with US73.93c at the same time yesterday.
The kiwi was strong across the board, easily jumping the A89c hurdle against the aussie to end on A89.31c from A88.76c yesteday.
Against the yen the kiwi reached a new near 17-year peak of around 88.90 to the NZ dollar soon after midnight, but it closed on 88.67.
The New Zealand trade-weighted index rose to its highest since December 2005, closing on 72.13 from 71.66 yesterday.
Dealers said that until RB governor Alan Bollard got on top of the domestic economy and signalled he was done with hiking interest rates the kiwi would remain underpinned.
New Zealand's interest rates -- already the highest in the developed world -- are what have been attracting investors to the kiwi dollar.
"The case for a rate rise was already compelling although history tells us it will be a fine call," Bank of New Zealand chief dealer Mike Symonds said.
He said given investors' appetite for high returns and willingness to take risks, combined with high prices for New Zealand commodities and the weakness of the US dollar, the kiwi was set to go higher yet.
There is a view that if the Reserve Bank raises rates once or twice more, then all it will further underpin the kiwi, he said.
"It's very difficult to argue against that in terms of the short-term outcome."
However, BNZ believes Dr Bollard should act aggressively to show he is getting on top of inflation in the domestic economy and once offshore investors know the economy is slowing, they will desert it in quick time.
Meanwhile, in major currency trading, the US dollar hit a 15-year low against sterling as investors flocked to currencies whose yields are expected to rise further, while they believe the Federal Reserve will begin cutting interest rates later in the year.
British data showing a jump in consumer prices stoked expectations for a rate hike, driving sterling above $US2 for the first time since 1992 when Britain was forced to exit the Exchange Rate Mechanism, the precursor to the euro.
Rising inflation around the world has stirred expectations for central banks from Australia, New Zealand to Britain to lift rates to fight price pressure, luring yield-hungry investors.
"The market is focusing on currencies with prospects of rate hikes such as the euro and the Australian and New Zealand dollars," said Minoru Shioiri, senior manager of forex trading at Mitsubishi UFJ Securities.
"The dollar, on the other hand, was not helped by the weak US data," Shioiri said.
The New Zealand dollar, known by traders as the kiwi, today hit a post-float high of US74.91c. Below is a chronology of its journey to that level:
* July 1967 - New Zealand dollar replaces pound at rate of two dollars to the pound and one NZ dollar to $US1.39.
* 1971 - US devalued its dollar relative to gold, leading New Zealand to peg its dollar at a value of $US1.216 with a 4.5 percent fluctuation range.
* July 1973 to March 4, 1985 - NZ dollar's value was determined from a trade-weighted basket of currencies.
* 1973 - Kiwi hits an all-time high of just under $US1.50 as New Zealand commodity prices soar and New Zealand experiences record balance of payments surpluses.
* 1974 - Kiwi is devalued to around $US1.35 in the wake of slump in wool, meat and butter prices after Britain enters the European Common Market and the first oil shock sends price of petrol soaring.
* July, 1984 - A run on the NZ dollar following the election of Labour government which indicated it would devalue by 20 percent. Currency trading is suspended when outgoing prime minister Sir Robert Muldoon initially refused to devalue. After provoking a constitutional crisis he finally agreed to devalue 20 percent on July 20.
* March 4, 1985 - The kiwi is floated at US44.44c, 68 percent below today's level. Against the Australian dollar it has gained 43 percent from A62.4c, while against the Swiss franc it has fallen 28.3 percent and against the yen it has fallen 25 percent.
* 1985-1988 - Against expectations the kiwi rises strongly post float as Reserve Bank restricts supply of money and interest rates are ramped up over 25 percent. The kiwi continues to rise despite the 1987 sharemarket crash and hits US72c as the Reserve Bank is given operational independence with a mandate to squeeze inflation out of economy.
* 1993 - The kiwi falls to US51c as recession hits in wake of Finance Minister Ruth Richardson's "mother of all budgets".
* November 1996 - The economy rebounds, peaking at 6.5 percent economic growth in mid-1994. The kiwi rises to US72c as investors pour money into New Zealand to capture high interest rates used to try and dampen demand.
* December 1996 to November 2000 - Kiwi falls 45 percent in a move precipitated by appointment of NZ First leader Winston Peters to the position of treasurer and a loosening of the inflation target. The Asian financial crisis in July 1997 and the disintegration of National-NZ First government followed by election of Labour in 1999 saw the kiwi drop to a nadir of US39.24c in October 2000.
* 2002-2007 -- New Zealand dollar rises 80 percent as New Zealand experiences one of its longest periods of uninterupted economic growth in living memory. The Reserve Bank is forced to hike interest rates 10 times in three years to try and quell inflation pressures.
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