The New Zealand dollar softened against the greenback today but hit an eight-year high of 80.3 Japanese yen.
The kiwi had rallied yesterday after data showed annual inflation hit 3.4 percent, breaching the Reserve Bank's 1-3 percent target band and raising expectations of a rate rise next week. However, it eased back today as traders re-focused on the prospect of rising US interest rates.
At 5pm, the kiwi closed on US69.62c compared with its US69.88c close yesterday.
It closed on its 80.30 yen high, up from 79.58 yesterday, its level since June 1997. The yen was weak against all currencies but particularly so against the kiwi due to Japanese investors' insatiable demand for higher-yielding foreign bonds.
The yen has come under pressure since the last business quarter of the year and the second half of Japan's fiscal year kicked off this month, with more portfolio managers ploughing cash into overseas bonds.
Even as the Bank of Japan moves closer to ditching its ultra-loose monetary policy and possibly raising interest rates sometime next year, most analysts expect rates to stay not far from zero percent for a while.
BNZ strategist Sue Trinh said there was evidence of Japanese investors switching out of Australian dollars into kiwi. That will, in turn, likely see the Australian dollar weakening against the kiwi.
She said recent issuance of Uridashi bonds (Japanese issued bonds denominated in Australian or New Zealand dollars) was bearish for the Australian dollar.
Uridashi demand was not a major driver of the Australian/NZ dollar cross rate, "but what they do is serve as a general bellwether for investor demand for yield.
"So if issuance of this instrument is picking up, it is likely that yield-driven investors will have heightened interest in those currencies that offer yield," she said.
"In this regard, our records of relative NZD and AUD issuance suggest a switch of preference by Japanese retail investors towards the NZD."
Over $NZ2 billion of Uridashi bonds had been issued already in this month, Ms Trinh noted.
Despite all this, BNZ sees increasing headwinds for the NZ dollar in coming quarters "which is one of the key reason we struggle to hold a bullish medium-term view of the NZ dollar above US70c."
The following are Reuters currency rates:
NZ dlr US69.61c US69.88c
NZ dlr/Aust dlr A93.17c A92.64c
NZ dlr/euro 0.5808 0.5777
NZ dlr/yen 80.30 79.58
NZ dlr/stg 39.78p 39.46p
NZ TWI 71.29 71.01
Australian dollar US74.78c US75.44c
Euro/US dollar US1.2000 US1.2108
US dollar/yen 115.29 113.89
- NZPA
<EM>Currency:</EM> Kiwi softens against greenback
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