got to say.. I told you so!
and if Alan Bollard made the expected decision to increase interest rate, expect the Kiwi flying higher.
If I were Alan Bollard, I would drop interest rate down by at least 3%. Drastic drop, to spook foreign investors and speculators parking their money to get high interest rate.
Yes that will put inflation target on the back burner, and risk higher inflation in the short term, but really, the inflation is driven by residential property anyway. If overseas funds move out, and less overseas investor buying NZ property, that would dampen down the prices.
Focus on NZRB as runaway NZ dollar tops US81c
The runaway New Zealand dollar continued smashing records today breaking through the US81c hurdle.
In hectic action, the kiwi raced up to US81.1c in mid-afternoon, its highest level in over quarter of century. It closed on US80.87c, over a cent higher that yesterday's US79.88c close.
Finance Minister Michael Cullen said the kiwi's gain was mainly the result of US dollar weakness but the kiwi made hefty gains across the board.
It hit a 20-year high against the Japanese yen, rising from around 96.20 yesterday to a high of 97.78.
It gained the best part of a cent against the Australian dollar as well, ending on A91.45c against yesterday's A90.65c and the trade-weighted index closing level of 76.95 was its highest close since the currency's float in 1985.
All eyes are now on whether the Reserve Bank will hike interest rates again on Thursday and whether that will thrust the kiwi to new highs.
Analysts said it was a 50:50 call with some saying another rate rise would see the economy hit the wall, thus ensuring a currency fall.
The wholesale interest rate market, which yesterday had priced in 17 basis points of the forecast 25 basis point rise, backed away a few pips today as the currency rose, suggesting a rate rise was less probable.
Deutsche Bank NZ's head of global markets, Sean Brown said the kiwi rose for the same old reasons, the currency's high yield.
US model accounts were doing much of the buying.
He said raising rates with the currency about US80c would be a hard call for central bank governor Alan Bollard.
"There will be plenty of people at the RB probably telling him that if you want to get the currency lower, you have to soften the economy and the quickest way to do that is to keep raising rates."
Mr Brown said there were also convincing arguments the other way -- that rates had been raised three times this year and time was needed to allow those actions to take effect.
"I wouldn't be surprised either way, but I'd slightly lean towards a rate hike to try and rebalance things."
Anthony Byett of fxmatters said it was one way traffic today.
He said the pattern after rate review tended to be for the NZ dollar to back off a little, with a US2c fall typical.
The key to a currency fall was less inflationary pressure, which would come when there was less demand in the economy, meaning lower growth rates.
"When we see that happen, we will see the NZ dollar quite likely plummet," Mr Byett said.
Meanwhile, the US dollar fell to a two-month low against the yen and hovered near a record low against the euro as worries about US subprime mortgage woes hurting the credit market and the economy still weighed.
Traders said market sentiment remained bearish for the US dollar, and players were awaiting US economic data later in the week for clues on whether the problems in the housing sector were spreading to broader economic activity.
Sterling extended gains to a 26-year high of $US2.0647 supported by expectations the Bank of England will lift rates to 6.0 percent by the year-end from 5.75 percent now.