Soaring NZ dollar scales fresh peaks, Aussie along for the ride

Fri, 28 Mar - 11:55am

* NZD hits 2-1/2-year peak vs USD, 6-yr summit vs yen

* Aiming for post-float high at $0.8842

* Aussie spikes to Nov peaks vs USD, up 4 pct this month

By Naomi Tajitsu and Cecile Lefort

SYDNEY/WELLINGTON, March 28 (Reuters) - The Australian and New Zealand dollars scaled fresh highs on Friday as a soggy euro and appetite for emerging market assets lifted demand for growth-linked currencies.

The New Zealand dollar NZD=D4 was the standout performer, soaring to $0.8694, a high not seen since August 2011. It also surged to a six-year peak of 88.73 yen NZDJPY=R and a 10-month summit of NZ$1.5800 versus the euro EURNZD=R .

All of which pushed the kiwi to a post-float high around 81.01 versus a currency basket =NZD .

The kiwi has gained 3.5 percent against the U.S. dollar so far in March, largely since the Reserve Bank of New Zealand started to lift interest rates and flagged more tightening.

Domestic traders have been surprised by the kiwi's 8 percent climb since mid-February, and further gains could be in store as overseas investors price in the prospect of more rate rises.

"We expect another hike in April so that's going to put more (upward) pressure on the kiwi," said Tim Kelleher, head of institutional FX sales at ASB in Auckland.

"The path of least resistance is definitely up, and we're seeing strong buying on dips ... so it will probably grind higher from here." He added that the kiwi's upward path remained clear - bar a smattering of importer offers above $0.8700.

A break above $0.8700 would open the door to a test of $0.8842, a post-float high hit in 2011.

Kiwi strength helped the Aussie dollar AUD=D4 , which leapt to a 16-month peak of $0.9294 to show a gain of 4 percent so far in March.

The next level of resistance is found at the 61.8 percent retracement of the October-January fall at $0.9340, with the daily moving average suggests the Aussie is trending higher.

It benefited from a sudden revival in emerging markets assets, leading dealers to suspect that stretched valuations on Wall Street are leading fund managers to go bargain hunting elsewhere.

The market often uses the Aussie as a liquid proxy to hedge against weakness, or wager on strength, in developing economies.

The Aussie received another lift on recent dovish talk from a string of European Central Bank (ECB) officials. The comments sent the euro to its lowest in four months against the Aussie

EURAUD=R to be last at A$1.4834. The single currency has dropped 10 cents since a peak in January.

The Australian dollar hit a 5-month high against the yen, helping push the trade-weighted index =AUD above 70 for the first time since November.

Next week's focus is the Reserve Bank of Australia's monthly policy meeting on April 1. The central bank is widely expected to keep rates steady at a record low of 2.5 percent but special attention will be given to its accompanying statement.

Any comment on the recent currency strength could trigger wild moves.

New Zealand government bonds 0#NZTSY= were largely unchanged.

Australian government bond futures were a touch higher, with the three-year bond contract YTTc1 steady at 96.950. The 10-year contract edged up to 95.925, off a two-month low.

(Editing by Eric Meijer)

((Cecile.Lefort@thomsonreuters.com)(+61 2 9373-1234)(Reuters Messaging: cecile.lefort.thomsonreuters@reuters.net))

Keywords: MARKETS AUSTRALIA/FOREX

URN: 
urn:newsml:reuters.com:20140328:nL4N0MP00K:4
Topics: 
JP US NZ AU FRX ASIA REP DBT LEN RTRS INT CEN MCE MMT AMERS

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