Kiwi goes wild over Rita 

The NZD/USD ranged a full cent overnight Thursday as the USD first weakened on the threat of Hurricane Rita to the oil-important town of Houston and then the USD strengthened on an official downgrade of Rita's likely severity.

The NZD/AUD remains pressured under 0.9100 by this week's current account deficit, at some 8% to GDP, for New Zealand.

That's not likely to last, with worldwide markets showing very little aversion to corporate or household credit risk.

No worries

The current account deficit has been the only blot on the investment landscape for the New Zealand markets this week.

The US faces many worries with another hurricane approaching rising prices for oil and lifting the potential that consumer and general economic activity suffers as a result.

New Zealand's current account deficit is minor in comparison. It seems though that the risk posed by the deficit is nothing too great. Certainly not enough to overcome the benefit to investors of New Zealand's interest rates. In the past days there has been NZD300 million of Eurokiwi bonds issued and reportedly an issue of NZD600 million in Uridashi bonds.

The fall in US yields on Wednesday night left the New Zealand market to rally on Thursday, almost matching the size of the move in the US.

New Zealand's 10 year yield dropped six basis points compared with the US market's seven basis points. The difference could be incidental, or it could just be a reflection of the issue of government bonds yesterday dragging away from support elsewhere in the market.

It is a sign of the times that the New Zealand market rallied in step with the US on Thursday. Usually when there is a New Zealand government bond tender the rest of the local market can not keep up.

There was a lot of demand for the bond tender on Thursday.

Over NZD1.0 billion of bids for the NZD200 million on offer. The bidding was split equally between the two maturities (July 2008 and December 2017) with each having a bid-to-cover ratio of over five times.