The New Zealand dollar powered to a 26-year high against the greenback on Monday, helped by US dollar weakness and improving economic fundamentals, while the Australian dollar held firm. The kiwi climbed to $0.8218 - its highest since it was floated in 1985 - from $0.8186 in early trade. It last traded at $0.8173.
"We will still see further new post float-high before any consolidation starts to come in," said Khoon Goh, ANZ-National head of markets economics and strategy. He said business confidence, dairy price auction and building approvals data due this week could further buoy the high-flying currency. The kiwi's rise also came after New Zealand posted a record monthly trade surplus in April driven by strong dairy exports.
Technically, the currency is poised to test the psychological $0.8250, while initial support is seen around $0.8170. Analysts said the kiwi dollar remained favoured among dollar-bloc currencies because of the attraction of the country's assets among Asian investors, in particular China.
Inflation expectations have also risen, according to a survey for the central bank, which has led some analysts to suggest the Reserve Bank of New Zealand could consider a rate hike before the end of the year. A Reuters poll showed rates are expected to be left at their current record low of 2.5 percent until the first quarter of next year.
Markets, though, have hardly changed their tightening odds, pricing a total tightening of 60 basis points in the next 12 months, compared with 58 bps on Friday. It has ranged between 50 bps and 60 bps in the past two months. In Australia, markets are pricing a total tightening of just 21 bps, dragging the Aussie to a four-month low of NZ$1.2999 against its neighbour before steadying around NZ$1.3065.
The Aussie/kiwi is set to find good initial support around NZ$1.3005-20, the daily lows last seen in February, which also represent the 76.4 percent retracement target of the rise seen between January and March, according to a trader. The Australian dollar held firm at around $1.0678 versus $1.0691 in New York on Friday, having climbed to a session high of $1.0737 - its highest in almost three weeks "US data feed on Friday night wasn't overly impressive and investors have taken the glass half-empty approach, rather than the glass half-full," said David Scutt, a trader at Arab Bank Australia.
"Most investors are basically on a holding pattern waiting to start afresh tomorrow," he added. Resistance is seen at $1.0781 with support at $1.0647. The Aussie has gained more than 5 percent so far this year. Australian data which showed a fall in company profits in the first quarter and a modest increase in business inventories, did little to change expectations of weak growth.
Indeed, first quarter GDP due mid-week will show the economy probably contracted for the first time since the December quarter of 2008. The economy was hit by extensive flooding in Queensland early in the year, which severely disrupted coal production and shipment, at a time when a strong Australian dollar was already hurting many exporters and households were spending less.