KEY POINTS:
The New Zealand dollar cracked its post float high with ease today in frenetic trading after ugly news in inflation data was revealed.
In trading that set screens pulsating, the kiwi was initially sold when the headline CPI number came in on expectations. But then, when non tradeables inflation was shown to have jumped 1.2 per cent in the quarter, it was all on as traders reckoned on the Reserve Bank hiking interest rates once, if not twice, more by mid-year.
The kiwi zoomed past the old high of US74.65c set in March 2005 to touch a peak of US74.91c. It eased back to US74.70c compared with US73.93c at the same time yesterday.
The kiwi was strong across the board, easily jumping the A89c hurdle against the aussie to end on A89.31c from A88.76c yesterday.
Against the yen the kiwi reached a new near 17-year peak of around 88.90 to the NZ dollar soon after midnight, but it closed on 88.67.
The New Zealand trade-weighted index rose to its highest since December 2005, closing on 72.13 from 71.66 yesterday.
Dealers said that until RB governor Alan Bollard got on top of the domestic economy and signalled he was done with hiking interest rates the kiwi would remain underpinned.
New Zealand's interest rates -- already the highest in the developed world -- are what have been attracting investors to the kiwi dollar.
"The case for a rate rise was already compelling although history tells us it will be a fine call," Bank of New Zealand chief dealer Mike Symonds said.
He said given investors' appetite for high returns and willingness to take risks, combined with high prices for New Zealand commodities and the weakness of the US dollar, the kiwi was set to go higher yet.
There is a view that if the Reserve Bank raises rates once or twice more, then all it will further underpin the kiwi, he said.
"It's very difficult to argue against that in terms of the short-term outcome."
However, BNZ believes Dr Bollard should act aggressively to show he is getting on top of inflation in the domestic economy and once offshore investors know the economy is slowing, they will desert it in quick time.
Meanwhile, in major currency trading, the US dollar hit a 15-year low against sterling as investors flocked to currencies whose yields are expected to rise further, while they believe the Federal Reserve will begin cutting interest rates later in the year.
British data showing a jump in consumer prices stoked expectations for a rate hike, driving sterling above US$2 for the first time since 1992 when Britain was forced to exit the Exchange Rate Mechanism, the precursor to the euro.
Rising inflation around the world has stirred expectations for central banks from Australia, New Zealand to Britain to lift rates to fight price pressure, luring yield-hungry investors.
"The market is focusing on currencies with prospects of rate hikes such as the euro and the Australian and New Zealand dollars," said Minoru Shioiri, senior manager of forex trading at Mitsubishi UFJ Securities.
"The dollar, on the other hand, was not helped by the weak US data," Shioiri said.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US74.70c US73.92c
NZ dlr/Aust dlr A89.31c A88.76c
NZ dlr/euro 0.5504 0.5460
NZ dlr/yen 88.67 88.46
NZ dlr/stg 37.20p 37.15p
NZ TWI 72.13 71.66
Australian dollar US83.63c US83.29c
Euro/US dollar 1.3583 1.3538
US dollar/yen 118.66 119.62
- NZPA