KEY POINTS:
The New Zealand dollar today regrouped below near record levels, underpinned by Australian dollar strength and carry trades moving back into favour.
The kiwi closed on US72.70c, just above its US72.65c close yesterday. It had hit a 23-month high yesterday of US73.13c, only US1.5c below its post-float high hit in March 2005.
The US dollar slumped to a two-year low against the euro on concern that the European Central Bank would hike interest rates.
This is despite March Federal Reserve Open Market Committee (FOMC) minutes suggesting further interest rate rises may be needed in the US and indications the Fed was willing to sacrifice growth to get inflation down.
The minutes only provided temporary relief and ANZ said markets are unconvinced of any sustained lift in the US dollar, so further attempts on the topside looked on the cards for the New Zealand dollar.
The New Zealand and Australian dollars hit decade highs against a slumping yen overnight after the International Monetary Fund (IMF) said it saw no need for "heavy-handed" action on the yen carry trade.
The IMF comments were taken as a green light to continue borrowing in yen to fund purchases of higher-yielding currencies like the New Zealand and Australian dollars.
Against the Japanese yen, the kiwi reached 87.12 yen, but eased back on the close to 86.82, just 20 pips above yesterday's close.
The Australian dollar hit a new 17-year high versus the greenback following job figures that showed unemployment down to a 31-year low, solidifying expectations of a rate rise.
It ended at US82.50c from US82.42c at yesterday's local close.
Against the aussie the New Zealand dollar eased to A88.10c from the A88.14c close yesterday.
Australian dollar strength has been a major factor behind the kiwi's strength.
In major currency trading, the euro, as well as surging to a two-year peak against the US dollar, hit an all-time high against the yen on hopes the European Central Bank would signal interest rates need to rise further later.
Traders were caught off guard by the euro's sudden jump to as high as US$1.3469 before the ECB's expected decision to keep rates on hold, which was driven in part by a spike in the single currency to a nine-year high against the Swiss franc.
Traders said concern about the health of the US economy is hampering the dollar just as market players keep dumping low-yielding currencies like the yen and franc to fund purchases of higher-yielding currencies in the carry trade such as the kiwi.
"It looks like the carry trade is back," said Noriyuki Kato, treasury management at State Street Global Markets in Tokyo. "You've got to surf along the waves of the weak dollar and the carry trade."
Reuters currency rates:
5pm today 5pm Wednesday
NZ dlr/US dlr US72.70c US72.65c
NZ dlr/Aust dlr A88.10c A88.14c
NZ dlr/euro 0.5400 0.5416
NZ dlr/yen 86.82 86.62
NZ dlr/stg 36.81p 36.80p
NZ TWI 70.69 70.72
Australian dollar US82.50c US82.42c
Euro/US dollar 1.3462 1.3417
US dollar/yen 119.42 119.24
- NZPA