The euro stayed on the back foot against major currencies on Thursday after the European Central Bank did not clearly suggest how much interest rates will rise following a widely expected lift to 4 percent in the previous session.
Investors' hunger for high-yielding currencies was stoked after data showed Australian job growth last month was nearly four times bigger than forecasts, fuelling expectations for higher rates and pushing the Australian dollar to a 17-year high.
The Aussie gains followed a surge in the New Zealand dollar to its highest versus the US dollar since the currency was floated in 1985, after its central bank surprised markets by hiking rates to 8 percent, the highest among industrialised nations. The yen initially inched up after some Asian stock markets tracked a drop in US and European shares, taking some of the shine off risky positions such as carry trades, in which purchases of higher-yielding assets are funded with the low-yielding Japanese currency.
But most equity markets later trimmed losses, while the volatile Shanghai Composite Index gained more than 2 percent on the day. Analysts said a slight correction was warranted given the yen's steady slide, but Japan's paltry rates were unlikely to do any favours for the currency even though the Bank of Japan is seen raising rates to 0.75 percent as soon as August.
The euro was little changed from late New York trade near $1.3505 off a three-week high of $1.3555 hit earlier in the week and still near the record high of $1.3682 struck in late April.
The dollar was little changed at 121.10 yen clawing back from a three-week low around 120.80 yen on buying from Japanese investors and investment trusts, traders said. The euro climbed to 163.60 yen from near 163.50 yen, recovering from a session low of 163.10 yen and near a record peak of 164.62 yen hit on Tuesday.
After raising rates to a six-year high on Wednesday, the ECB showed its readiness to tackle inflation risks, but President Jean-Claude Trichet gave limited guidance on how soon additional rises would come, or how much tightening remains in store.
The New Zealand dollar climbed after the Reserve Bank of New Zealand's unexpected rate rise, only to retreat after RBNZ Governor Alan Bollard was quoted as telling Bloomberg Television that he hoped he would not have to raise rates further. The kiwi then received another push higher to $0.7569 thanks to a surge in the Australian dollar to $0.8475 after data showing employment jumped 39,400 in May and the jobless rate fell to a 33-year low. The Aussie climbed to a 15-year high around 102.55 yen helping to drag the kiwi higher to around 91.65 yen near a 17-year high hit earlier in the week.
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