KEY POINTS:
The New Zealand dollar strengthened against all currencies today in a market thinned by holidays in the US and Europe.
Against the greenback it powered up to US79c by the close against its US78.64c close yesterday.
A Reserve Bank commissioned survey of expectations saw inflation expectations rise, prompting currency traders to assume the bank will hold interest rates up for longer.
ANZ Bank chief dealer Murray Hindley said the market was still short overall and a squeeze on short players would see the kiwi rise higher yet.
The RB survey found business managers now believed inflation for the next two years would be right at the top of the Reserve Bank's 1-3 per cent target.
Mr Hindley said that meant the RB was "not about to cut rates any time soon".
Meanwhile a National Bank survey showed business remained depressed.
Supporting the kiwi, an analysis in Japan found the yen carry trade had not only survived the past nine months of financial market mayhem, but looked set to continued unabated.
The carry trade - using low-yielding currencies to buy higher-yielding ones - survived recent market turmoil partly because the Japanese investor had hardly budged.
During the worst of the credit crisis, Japanese brokerages, life insurers and mutual funds bought a net of 7.58 trillion yen ($94 billion) of foreign stocks and bonds - only slightly less than in the same period a year earlier.
Margin traders in Japan seized on the recent pull-back in the New Zealand dollar to build up a record net long position of 110,697 contracts on the Tokyo Financial Exchange in mid-May as the kiwi tumbled against the yen.
The kiwi rose to 81.62 yen from 81.27 at yesterday's close while against the aussie it strengthened to A82.15c from A81.86c, continuing its rebound from a two-year low.
The NZ dollar trade weighted index rose to 69.91 from 69.66 yesterday.
Locals are girding for a big week next week, when the Reserve Bank of Australia is set to review rates on June 3, and likely to hike rates or signal rate rises ahead, while the local central bank reviews rates two days later.
In major currency trading, the US dollar inched back towards one-month lows against a basket of currencies as oil prices stayed near record highs, feeding concerns about the deteriorating US economy.
Currency rates:
NZ dlr/US dlr US79.00c US78.64c
NZ dlr/Aust dlr A82.15c A81.86c
NZ dlr/euro 0.5004 0.4991
NZ dlr/yen 81.62 81.27
NZ dlr/stg 39.86p 39.65p
NZ TWI 69.91 69.66
Australian dollar US96.17c US96.06c
Euro/US dollar 1.5789 1.5758
US dollar/yen 103.33 103.31
- NZPA
