Rate hike aids kiwi

Press, 11 August 1988, Page 28

Rate hike aids kiwi

Wellington

The New Zealand dollar stayed above US67c in quiet trading yesterday, as Government stock rates jumped in apparent reaction to the rise in United States discount rate.

The New Zealand dollar finished at U567.03/13c close to its opening at U567.05/15C. Dealers said the dollar tested U567.20c before settling back as the market watched movements in the major currencies.

The local dollar was supported by firmer New Zealand interest rates and by its relationship with the Australian dollar.

Benchmark five-year Government stock rates closed about 13.22 per cent, after selling carried it from a 13.05 per cent opening.

Stock dealers attributed the selling to nervousness after the U.S. Federal Reserve raised the discount rate 0.5 per cent, pushing up U.S. interest rates. Given that New Zealand was not directly affected by the U.S. move, the local selling was unwarranted, one dealer said. “We might tomorrow see a short-covering rally ans it (five-year-rate) will cpme

down before you can click your figures.” Call rate also firmed yesterday, peaking at .around 15.5 per cent. On the currency market, the New Zealand dollar closed at AustB4.26c and dealers said that was a level at which it seemed well supported. A weakening in the Australian dollar against the U.S. currency would also affect the New Zealand dollar, they added.

On other cross rates, the New Zealand dollar . was 1.2860 marks, 39.73 p, 90.410 yen, and 1.0753 Swiss francs. The Reserve Bank’s trade weighted index was fixed at 3 p.m. at 67.5, above Tuesday’s finish at 67.2.

In New York, the U.S. dollar gained 1 per cent on Tuesday (early yesterday, N.Z. time) to finish at its highest level in a year-and-a-half after the announcement by the Federal Reserve Board that it was raising the discount rate half a point to 6.5 per cent. The greenback showed signs of weakening during the morning but leapt over the 1.92 Deutsche mark level at the Fed’s announcement and closed at 1.9210 Deutsche

marks against Monday’s close of 1.9012 Deutsche marks and at 135.15 yen against 133.82. The speed of the Fed’s decision surprised currency traders, who, were counting on a softer tightening of credit in the United States, most notably through hikes in the Federal Funds Rate, the shortest term inter-bank loan rate, according to traders.

Several traders said the dollar, which broke the 1.90 Deutsche mark-barrier on Monday, would continue rising unless the central banks stepped in with massive interventions.

But, the traders said, the central banks apparently stayed out of the market on Tuesday. In London, the U.S. dollar closed in Europe more than one pfennig stronger than Monday’s finish and at a 19month high against the mark, spurred by a half point rise in the U.S, discount rate.

In spite of caution about possible central bank intervention, most operators see further upward potential for the dollar.

The dollar closed at 1.9150/60 marks and 134.65/ 75 yen after ending Monday at K9025/35 marks and yen.