The New Zealand dollar tested the 87 US cent level overnight for the second time since the Reserve Bank tightened monetary policy last week, as low volatility in currency markets kept the nation's relative high interest rates in demand.
The kiwi touched a high of 86.99 US cents overnight, a level it last tested on Friday morning after the Reserve Bank affirmed its rate hike track on Thursday. The local currency was little changed at 86.78 US cents at 8am in Wellington from 86.84 cents at 5pm yesterday. The trade-weighted index was little changed at 80.76 from 80.85 yesterday.
New Zealand's central bank raised interest rates for a third time last week and economists expect a further hike next month to curb inflation. A report Thursday is expected to show the economy was growing at a 3.1 annual pace in the first quarter. That contrasts with most other major economies where central banks are trying to keep interest rates as low as possible to stimulate growth.
"Kiwi has edged higher because currency volatility hit a fresh 7-year low yesterday so the interest rate appeal means that carry trade is still quite a good prospect," said Bank of New Zealand currency strategist Raiko Shareef.
He expects the local currency to trade between 86.30 US cents and 87 cents today with no major data releases scheduled.
